after Americas Department of Justice (DoJ) requested $14 billion to settle claims that Deutsche mis-sold residential mortgage-backed securities (RMBSs) before the financial crisis.

Hopes that it might settle with the DOJ for $5 billion-odd, though so far unfulfilled, have since brought uneasy respite.

... after America's Department of Justice (DoJ) requested $14 billion to settle claims that Deutsche mis-sold residential mortgage-backed securities (RMBS8) before the financial crisis. Hopes that it might settle with the DOJ for $5 billion-odd, though so far unfulfilled, have since brought uneasy respite. . ...Deutsche has a thinner capital cushion than other leading European banks (see chart). It may yet have to ask investors for money, although it says not: it plans to sell assets and has begun an overdue restructuring. But the last thing it wants is to go begging now. ..." (Autumn blues, The Economist, Oct 8th 2016) An adequate sufficiency? Basel III ratios Common equity tier-1 capital ratio Capital ratios, per cent Q2 2016, % 0 4 8 12 Common All Tier 1 Total 16 capital capital equity UBS 6.0% 8.0% Minimum 4.5% HSBC Conservation buffer 2.5% Credit Suisse Minimum plus Barclays conservation buffer 8.5% 10.59% 7.0% BNP Paribas Countercyclical buffer Common equity or other fully loss- absorbing capital Source: BIS 0-2.5% Socit Gnrale Deutsche Bank Banco Santander UniCredit Source: Company reports Economist.com a) Assume the balance sheet of Deutsche Bank looks like the following. Copy it down into your answer booklet. Show the changes that result from Deutsche Bank paying the settlement fine of $7.2 billion to the DoJ. Assume that the DoJ wishes to receive the payment on their account at Deutsche Bank. Explain if the bank faces a liquidity and/or capital adequacy ratio problem. (3 marks) Assets in billion $ Liabilities and equity in billion $ CashReserves at ECB $5 Demand deposits $100 Term deposits (6 months) $330 $475 Tier 1 Capital Loans (Risk weight 100%) $50 b) Explain how your answer from a) changes, if the DoJ banks exclusively with Citibank and insists on payment towards its Citibank account (2 marks) c) Assume that Deutsche Bank has just paid a dividend of 0.75 EUR. The discount rate is 5% and experts predict that divideends will grow on average by 3% indefinitely. Calculate the share-price via Gordon's Dividend Growth Model. Redo the calculations for the situation that the market expects dividends to remain constant at 0.75 EUR indefinitely. (5 marks) d) In April 2017, Deutsche Bank raised $9.4bn additional capital with subbscription price of $11.65 per new share. Show the according changes in a simplified balance sheet Furthermore, briefly explain how a potential increase in the share price to $17 after the announcement of the subscription price would have impacted Deutsche Bank's balance sheet (5 marks) ... after America's Department of Justice (DoJ) requested $14 billion to settle claims that Deutsche mis-sold residential mortgage-backed securities (RMBS8) before the financial crisis. Hopes that it might settle with the DOJ for $5 billion-odd, though so far unfulfilled, have since brought uneasy respite. . ...Deutsche has a thinner capital cushion than other leading European banks (see chart). It may yet have to ask investors for money, although it says not: it plans to sell assets and has begun an overdue restructuring. But the last thing it wants is to go begging now. ..." (Autumn blues, The Economist, Oct 8th 2016) An adequate sufficiency? Basel III ratios Common equity tier-1 capital ratio Capital ratios, per cent Q2 2016, % 0 4 8 12 Common All Tier 1 Total 16 capital capital equity UBS 6.0% 8.0% Minimum 4.5% HSBC Conservation buffer 2.5% Credit Suisse Minimum plus Barclays conservation buffer 8.5% 10.59% 7.0% BNP Paribas Countercyclical buffer Common equity or other fully loss- absorbing capital Source: BIS 0-2.5% Socit Gnrale Deutsche Bank Banco Santander UniCredit Source: Company reports Economist.com a) Assume the balance sheet of Deutsche Bank looks like the following. Copy it down into your answer booklet. Show the changes that result from Deutsche Bank paying the settlement fine of $7.2 billion to the DoJ. Assume that the DoJ wishes to receive the payment on their account at Deutsche Bank. Explain if the bank faces a liquidity and/or capital adequacy ratio problem. (3 marks) Assets in billion $ Liabilities and equity in billion $ CashReserves at ECB $5 Demand deposits $100 Term deposits (6 months) $330 $475 Tier 1 Capital Loans (Risk weight 100%) $50 b) Explain how your answer from a) changes, if the DoJ banks exclusively with Citibank and insists on payment towards its Citibank account (2 marks) c) Assume that Deutsche Bank has just paid a dividend of 0.75 EUR. The discount rate is 5% and experts predict that divideends will grow on average by 3% indefinitely. Calculate the share-price via Gordon's Dividend Growth Model. Redo the calculations for the situation that the market expects dividends to remain constant at 0.75 EUR indefinitely. (5 marks) d) In April 2017, Deutsche Bank raised $9.4bn additional capital with subbscription price of $11.65 per new share. Show the according changes in a simplified balance sheet Furthermore, briefly explain how a potential increase in the share price to $17 after the announcement of the subscription price would have impacted Deutsche Bank's balance sheet