Felix Hufeld, the head of Germany's financial regulator Bafin, has said "not every nervous market reaction is backed by objective facts," after a week that saw Deutsche Bank shares battered by a crisis of confidence.

Deutsche Bank shares recovered somewhat from record lows on Friday when news emerged that a US Justice Department fine over toxic debt would be $5.4 billion (4.8 billion euros), not the $14 billion originally demanded.

Both Deutsche Bank and the Justice Department have declined to comment on the news.

Without naming Deutsche Bank or Germany's second-biggest institution Commerzbank, Hufeld told the Sunday edition of the "Frankfurter Allgemeine" newspaper (FASZ): "I warn people not to let themselves be drawn into a kind of downward spiral of negative perception."

The Bonn-based overseer blamed the current low interest rate environment for the erosion of banks' profitability, but added that "painful cuts will be unavoidable."

Hufeld said he expected several mergers in the German banking sector, mainly among the nation's network of smaller cooperative and savings banks.

And, he added, for every large bank there were rescue and wind-down plans.

Court case in Milan

Hufeld's remarks coincided with several reports from Italy carried by news agency Reuters and the "Wall Street Journal" that a Milan judge had on Saturday charged 13 people over questionable past derivative transactions by the Banca Monte dei Paschi di Siena with Japan's Nomura and Deutsche Bank.

Reuters said six of them were former managers of Deutsche Bank. The "Wall Street Journal" named four managers, saying they had declined to comment.

On Friday, US-traded shares of Deutsche Bank finished up 14 percent at $13.09, while in Frankfurt, in part due to different market hours relative to the timing of the news, shares added 6.4 percent at 11.57 euros.

'Comfortable buffer'

Deutsche Bank chief John Cryan sought to lift the mood in a letter to staff Friday.

 "At no time in the last two decades has Deutsche Bank been as safe as it is today," Cryan wrote, adding that the bank's liquidity reserves amounted to more than 215 billion euros.

"This is an extremely comfortable buffer," Cryan said, referring to funds put aside to respond to charges that it knowingly sold high-risk mortgage securities ahead of the 2008 financial crisis.

If past settlements with the US Justice Department were taken as benchmarks, then there were no grounds for "uncertainty about the outcome of our litigation cases in the US," Cryan said.

Ringing endorsements

Speaking to the FAZS newspaper, managers of some of Germany's leading corporations gave their support to Deutsche Bank.

"German industry needs a Deutsche Bank to accompany us out in the world," said BASF supervisory board chairman Jürgen Hambrecht.

"Strong German banks are important for a strong Germany economy," added Daimler chief Dieter Zetsche. "The Deutsche Bank has a great tradition, a solid foundation, and, building on that, a good future." 

ipj/cmk (AFP, dpa, Reuters)