FRANKFURT, Sept 17 (Reuters): Deutsche Bank said it would fight a $14 billion demand from the U.S. Department of Justice to settle claims it missold mortgage-backed securities, a shock bill that raises questions about the future of Germany's largest lender.
The claim against Deutsche, which is likely to trigger several months of talks, far exceeds the bank's expectations that the DoJ would be looking for a figure of only up to 3 billion euros ($3.4 billion).
The demand adds to the problems facing Deutsche Bank's Chief Executive John Cryan, a Briton who has been in the job for a year.
The bank only scraped through European stress tests in July and has warned it may need deeper cost cuts to turn itself around after revenue fell sharply in the second quarter due to challenging markets and low interest rates.
Deutsche Bank shares, which have lost around half their value this year, tumbled 7.6 percent to 12.10 euros in Frankfurt on Friday, with analysts saying the bank may need to raise fresh funds from investors or sell assets to shore up its capital ratios.
The cost of insuring Deutsche Bank debt against default rose by around eight percent.
The bank, which employs around 100,000 people, said it regarded the DoJ demand as an opening shot.
"Deutsche Bank has no intent to settle these potential civil claims anywhere near the number cited," it said in a statement.
"The negotiations are only just beginning. The bank expects that they will lead to an outcome similar to those of peer banks which have settled at materially lower amounts."
Analysts said that even a hefty reduction in the bill was likely to weigh heavily on Deutsche Bank's finances.
"If the final bill is at 5 billion euros or more Deutsche Bank will not be able to avoid a capital hike anymore," said Ingo Frommen, banking analyst at LBBW.
Deutsche Bank's problems are likely to alarm political leaders in Europe's largest economy and the home to the European Central Bank.
The German finance ministry said on Friday that the government expected a "fair result" from the negotiations but that the talks were a matter for the bank and the American authorities.
Finance minister Wolfgang Schaeuble took the unusual step of voicing public support for the bank earlier this year and a senior opposition figure said he expected the government to step in as a last resort if needed.
"The question would be how much damage would it do to the economy if the bank were to topple," said Green Party financial spokesman Gerhard Schick.
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