Deutsche Bank shares headed for single digits?

Deutsche Bank has been in freefall as concerns grow about its financial health. It has sought to reassure investors fearful that a potentially huge US settlement for mis-selling mortgage securities could leave it needing fresh capital. The technical charts do not look pretty.

Deutsche Bank exterior
Source: Bloomberg

Shares in the German banking giant have hit all-time lows, after a report in local media suggested German chancellor Angela Merkel wouldn’t bail it out in the event of a crisis ahead of next year’s elections. Concerns are high about the bank’s financial position because it faces a settlement of up to $14 billion (€12.5 billion), with the US Department of Justice (DoJ) over allegations of mis-selling mortgage securities. Its market capitalisation has dropped to €15.8 billion.

Germany’s largest bank has said it won’t settle for anywhere near $14 billion, and it has also denied asking the government for any help in its battle with US regulators. It has also said it won’t need to raise new capital at the moment, as it complies with regulatory requirements. However, Deutsche Bank is facing numerous legal battles, and it has already set aside about $5.5 billion in reserves to cover them. That would fall short of a likely settlement amount with the DoJ, based on the fines it has meted out to other institutions.

Investors therefore remain fearful that, despite its repeated denials, Deutsche Bank will need to raise fresh capital and/or turn to the German government for support. They have been selling in droves.

Technical analysis: headed for single digits?

Many Deutsche Bank shareholders will glance at the weekly chart with trepidation. The shares have been falling continuously for some time, and the pace of decline has even accelerated recently. Support between €11.06 and €11.23 has been broken significantly.

There’s a glimmer of hope that psychological support will withstand the selling pressure, but with the chart overrun by the bears, it could be the shares are headed for single digits. From the height of the sliding zone - the top is at around €14.00 and the bottom at €11.06/€11.23 - a technical price target of about €8.00 can be calculated. If the bulls mount a technical counter-offensive, former support at €14.00 would be the target.

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