Shareholders regain confidence as suggestions emerge Deutsche Bank might be too big to fail after all

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Deutsche Bank shares finished flat today after an initial three per cent dip, as murmurs surfaced that the German giant might be too big to fail after all.

Shares in the lender plunged 7.5 per cent to €10.55 yesterday, after reports over the weekend suggested German Chancellor Angela Merkel would not be prepared to offer state assistance, even as the bank faced a record $14bn (£10.8bn) fine from the US Department of Justice for mis-selling mortgage-backed securities. 

Shares were on a downward slide again today, until Merkel suggested in a news conference that Deutsche Bank was a vital element in Germany's financial sector.

"I only want to say that Deutsche Bank is a part of the German banking and financial sector," Merkel said. "And of course we hope that all companies, also if they face temporary problems, can develop in the right direction."

Read more: Merkel may have ruled it out, but is a Deutsche Bank bailout on the cards?

Merkel's comments over the weekend likely left many investors wondering if a government of a major financial hub really would be prepared to leave one of its key institutions to fend for itself.

"Deutsche is too big to fail," Neil Wilson, analyst at ETX Capital, told City PM "I don't see how they [the German government] could let it go under. There would have to be a backstop along the way and, in good European tradition, they'll be a fudge found to sort it, I'm sure."

However, other analysts were less bullish about the fate of the lender, comparing it to the ill-fated Lehman Brothers. 

Read more: Deutsche Bank's share price sank to a record low today

"There is a fear that Deutsche Bank is setting up as Europe's Lehman Brothers moment," said Jasper Lawler, market analyst at CMC Markets. "US banks have been taking advantage of the difficulties in the European banking sector by taking market share but trouble at a multinational with a big presence in US capital markets like Deutsche Bank carries huge counterparty risk."

Deutsche Bank's legal woes have been affecting its books for some time now. When it unveiled a worse-than-expected full year loss of €6.8bn in January, it also announced that litigation charges for the year had risen to an eye-watering €5.2bn.

Yesterday, a spokesperson for the bank hit back at claims it had approached the German Chancellor for assistance with the US fine.

Read more: It's eight years since the Lehman Brothers collapse. What's changed?

"This question is not on our agenda: Deutsche Bank is determined to meet the challenges on its own," the spokesperson added. "The question of a capital increase is currently not on the agenda, we comply with all capital requirements."