Shares in Royal Bank of Scotland have fallen heavily today after US authorities said Deutsche Bank may be forced to repay $14 billion to settle mis-selling charges.
Investors fear RBS will suffer a similar fate and sold out of the 73% state-owned bank, forcing the shares more than 5% lower.
The US Department of Justice is making the claim against Germany’s biggest bank for the mis-selling of mortgage-backed securities which helped plunge the world into the banking crisis in 2008.
It is the latest difficulty to face Deutsche Bank’s British chief executive John Cryan who, in his first year in the role, has seen it scrape through European stress tests and hint at deeper cost cutting to turn itself around.
Deutsche Bank shares, which have lost around half their value this year, tumbled a further 7.6% today.
Some analysts are arguing that the penalties now being meted out on the banks are making matters worse rather than better.
Neil Wilson of ETX Capital says even if the German bank is not forced to pay the figure quoted, a penalty in the billions would be “needlessly punitive” for a bank already on the rocks.
“You have to wonder if financial regulators are starting to do more harm than good. It’s also got serious implications for RBS, which is among a number of European institutions that could face similar claims from the US Department of Justice,” he said.
RBS could be facing a $13bn bill settle the claims against it and setting it back further in its attempts to become profitable.
“It would also derail plans to return the bank to private ownership any time soon,” said Mr Wilson.