Finance

Lionel Laurent is a Bloomberg Gadfly columnist covering finance and markets. He previously worked at Reuters and Forbes.

John Cryan is running out of things to say. 

Once again, in a memo to employees on Friday, he reiterated the bank has 200 billion euros ($223 billion) in liquidity reserves and has bolstered its capital base -- to little effect. The shares dropped 4.4 percent and Deutsche Bank's riskiest bonds have fallen to their lowest since February.

Going Nowhere
The shares have hit a record low amid concern Deutsche Bank will issue new stock to boost capital
Source: Bloomberg

Given the pressure is ratcheting up not just on Deutsche Bank but the whole industry, now would be a really good time for someone else to stand up and say something. This may not be a Lehman moment but it is surely in the interests of both U.S. and European regulators to stop the short-term rot.

CoCo Pops
Deutsche Bank's riskiest bonds have also plunged on concern the bank could miss a coupon

An obvious candidate to take the microphone from Cryan is the U.S. Department of Justice. Deutsche Bank faces a long-term profitability problem, but the current rout really revolves around one thing: the size of an eventual legal settlement over crisis-era mortgage-backed securities.

When press reports earlier this month indicated a settlement was near, investors bet the penalty would be up to $3 billion and the bank's shares rallied; when the actual figure shot up to $14 billion, the stock plunged. At this point, any number would be a relief.

Unsettled
Deutsche Bank's shares have ebbed as the size of the likely U.S. penalty became clear
Source: Bloomberg

The idea that the Justice Department would somehow lose credibility or be painted as going easy on the bank if it reduced that fine is spurious. A penalty of $8 billion would be more than what Goldman Sachs paid in its own settlement and be punitive enough to blow through all of Deutsche Bank's litigation reserves. It would also offer certainty and clarity to the market and, if necessary, would lay the ground for a future capital raising.

And in this game of chicken, it is not in U.S. interests to watch the slow car crash continue. The longer the sell-off continues, the more it strengthens the argument that Deutsche Bank won't be able to pay a big fine. And even if the recent woes of European banks have helped U.S. banks take market share -- the current top five global investment banks are all American -- yesterday's pain on the U.S. market shows that investors do still see systemic links to Deutsche Bank, as the IMF does.

If the U.S. won't talk, Europe should. Angela Merkel, for one, needs a new script. Her government's instance that there is no need for speculation about state backing is grating. Showing support for the country's No. 1 bank in the face of a U.S. fine may seem politically unpalatable, but it's surely better to try to resolve manageable issues in 2016 than risk letting them become systemic ones in 2017. Calming financial markets in the short term may be the least expensive option, even in political terms.

European Problem
Deutsche Bank's woes are spreading to the wider sector
Source: Bloomberg
Intraday times are displayed in ET.

And in the face of deafening political silence, the European Central Bank also has a stake in ending these jitters. As a regulator, it needs to maintain credibility and stability in the system. Concerns about Deutsche Bank are beginning to spread to the rest of the industry: European banks borrowing in dollars are now paying the most since 2012, as Bloomberg News's Lukanyo Mnyanda points out here.

I've said before that Europe's banks -- and notably Deutsche Bank -- face a long-term struggle to make their core businesses profitable. But the short-term worries need to be fixed first. The best thing you can say about the current market squeeze is that it might just be the catalyst that prompts someone other than Cryan to talk.

--With assistance from Marcus Ashworth in London.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Lionel Laurent in London at llaurent2@bloomberg.net

To contact the editor responsible for this story:
Edward Evans at eevans3@bloomberg.net