Deutsche Bank poised for tense weekend stand-off against the markets

Under-fire Deutsche Bank and German Chancellor Angela Merkel head into a tense stand-off against the financial markets this weekend as shares at the lender hit fresh 30-year lows.

The chief executive of the Berlin stock exchange Artur Fischer warned the markets are "playing with dynamite" by driving down Deutsche Bank's share price.

Shares in the bank, that was until recently seen as one of the strongest in Europe, fell 9% to €9.92, a slump of almost two-thirds compared to last November, before recovering slightly later.

Investors confidence in the bank dipped sharply earlier this month after the US Department of Justice (DoJ) proposed that Deutsche Bank pay a $14bn penalty to settle allegations of mis-selling mortgage securities in the run up to the financial crisis in 2008.

Fischer blamed widening views between investors and the bank on the ability of the lender to meet its costs.

Asked on BBC Radio 4's World At One if the markets were playing with fire, Fischer said: "Definitely. You could say playing with dynamite."

As share prices in the troubled bank continued to tumble, Fischer said: "The market bets that the German government will do a bailout even though there is no need for that at this point in time at all."

"We have a disconnect between perception and reality. Reality is what you have in the balance sheet of Deutsche ... they have three times as much capital than what the share value is, so the reality is actually much better than the perception. But the perception at the end counts, so people act on perception."

Long Weekend

"Deutsche will have to come up with some good news. The market has to be put at ease. I'm pretty sure that in the long weekend we have ahead of us we will hear some positive news coming out of Deutsche."

Fischer said Chancellor Angela Merkel was "between a rock and a hard place" as she could not go back on her word by using taxpayers' money to bail out the banks.

Yorkshire-born Deutsche Bank chief executive John Cryan moved to reassure investors over its health, even as its share price tumbled to new lows.

The collapse in the lender's stock follows reports that 10 hedge funds had reduced their exposure to the lender and have taken their business elsewhere.

Cryan was forced to send a morale-boosting memo to staff, saying the news about the hedge funds has sparked "unjustified concerns".

"We should consider this in the context of the bigger picture: Deutsche Bank overall has more than 20 million clients."

"I understand if you feel concerned by the extensive coverage on this issue. Our bank has become subject to speculation. Ongoing rumours are causing significant swings in our stock price.

"It is our task now to prevent distorted perception from further interrupting our daily business. Trust is the foundation of banking. Some forces in the markets are currently trying to damage this trust."

However, the move comes as the Financial Times reports that the DoJ wants to strike a quick group settlement with Barclays, Credit Suisse as well as Deutsche Bank before the US Presidential elections in November.

The troubles at Deutsche Bank have dragged down banking stocks across Europe, with traders reminded how fragile lenders are in the current prolonged low-interest environment where it is difficult to make money on loans.