Banks tumble as hedge funds shun Deutsche Bank

Fears over the health of Deutsche Bank has sent shockwaves through European markets as the German banking giant’s shares slumped to a record low.

Reports of hedge funds cutting their exposure to the banking behemoth added to its woes and chief executive John Cryan intervened in a memo to staff attacking the “market forces” attempting to damage the company.

But shares in Deutsche Bank fell 9% — dipping below €10 for the first time — as the latest speculation surrounding the sector-crucial organisation triggered a broader sell-off.

In London, where Deutsche has 7000 staff, banks were among the biggest casualties: Barclays fell 4.8p to 162.5p, Royal Bank of Scotland lost 3.4p to 173.7p and Lloyds fell 1.3p to 54.2p.

The wider FTSE 100 fell more than 1% but the fallout of Deutsche’s struggles was felt across Europe as Germany’s Dax, France’s CAC40 and Spain’s Ibex lost 2%.

Spain’s Santander was in the spotlight after its own profits downgrade and Dutch bank ING dropped like a stone as reports of thousands of job cuts at the bank sent shares down 5%.

Deutsche Bank has seen a quarter of its market value — more than €4 billion (£3.5 billion) — obliterated this month as the threat of a $14 billion (£11 billion) fine from the US over mis-sold toxic mortgage-backed loans fuelled concerns it may need to tap investors to strengthen its finances.

The German lender scraped through European stress tests in July and the International Monetary Fund said in June that the bank was the biggest potential risk to the wider financial system. The speculation over its health has even prompted speculation that German Chancellor Angela Merkel could step in, although Germany has so far insisted that the bail-out is not on the cards.

Bets on the bank going bust rose as the cost of insuring against a Deutsche default for five years jumped to 2.55%, close to the seven-month high of 2.6% reached earlier in the week.