Why Deutsche Bank’s Shares Are at a Record Low: QuickTake Q&A

One of the world’s most important financial institutions faces dwindling investor confidence amid concern it may need more capital or even government help. This story, ripped from the headlines of 2008, is happening today to Deutsche Bank AG. In mid-September, the U.S. Justice Department told Germany’s largest bank it would have to pay $14 billion to settle a case over how it sold and packaged residential mortgage-backed securities a decade ago. Though history suggests that figure is subject to negotiation, it was large enough to spook investors. Now Deutsche Bank may need help -- but what kind, and from whom?

Deutsche Bank, with about 1.8 trillion euros ($2 trillion) in assets, is more than half the size of the German economy and operates Europe’s largest investment bank. More importantly, its connections to other lenders may make it the single biggest contributor to systemic risk among global banks, the International Monetary Fund said in June. It has gross notional exposure of 46 trillion euros to derivatives -- contracts with other financial institutions tied to the value of an asset. Some of Deutsche Bank’s most complex deals are “an accident waiting to happen,” Jacques-Henri Gaulard, a Kepler Cheuvreux analyst, wrote to clients on Sept. 29. Stuart Lewis, the bank’s chief risk officer, told Welt am Sonntag that the real net risk of those products is actually much lower than that of several competitors.