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Deutsche's low market cap fuels investment talk, shares rise

Deutsche Bank AG's share price jumped more than 4% on July 6 after German business magazine Wirtschaftswoche reported that JPMorgan Chase & Co. and Industrial & Commercial Bank of China Ltd. were considering investing in the troubled German lender.

U.S.-based JPMorgan denied that it was interested in taking a stake, however.

Frankfurt-based Deutsche's depressed market capitalization, which has fallen to about €20 billion, makes it a target for takeover by other banks, and, according to sources speaking to Wirtschaftswoche, JMorgan and China's ICBC have been circling.

The people — investment banking sources in Frankfurt — suggested that JPMorgan's interest in Deutsche may stem from Brexit-related considerations, as Frankfurt's role as a financial center in continental Europe would grow after the U.K. leaves the EU. They said ICBC was also interested in investing in Deutsche.

At €300 billion and €280 billion, respectively, the market caps of both JPMorgan and ICBC far exceed that of Deutsche, the report noted.

Deutsche, Germany's biggest bank by assets, has endured a long-running process of revamping its strategy, which has helped make it highly sensitive to stock market movements. A recent rating downgrade by S&P Global Ratings and a partially-failed stress test in the U.S. have added to the pressure.

The bank also underwent a CEO change in early April coupled with another revision in corporate strategy. Its stock price has plummeted by nearly 40% since the beginning of 2018; it closed at €9.52 on July 5 on the Frankfurt Stock Exchange, down from almost €16 on Jan. 2.

The shares closed up 2.59% on July 6, at €9.77. The stock hit an intraday high of more than €10 in Frankfurt following the release of Wirtschaftswoche's report.

According to regional government sources speaking to Wirtschaftswoche, German Chancellor Angela Merkel sought an expert view on Deutsche Bank's situation on June 26 from Axel Weber, the former president of Germany's central bank and current chairman of Swiss bank UBS Group AG.

The Wirtschaftswoche report has, however, been denied by both the German federal government and JPMorgan. A spokesman for the U.S. bank told the Financial Times July 6 that it is "not true" that it is seeking to invest in the Deutsche Bank. Meanwhile a German government spokesman told press July 6 that Merkel had not spoken to Weber about Deutsche and that the report was "purely speculative."

S&P Global Ratings and Market Intelligence are units of S&P Global Ltd.