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Europe: Shares rise as Deutsche Bank recovers

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[LONDON] European shares rose on Wednesday, helped by gains among commodity stocks, while Deutsche Bank recovered from all-time lows hit in the previous session.

Sentiment around the bank perked up after its CEO said there was no need for a cash call, while the German government denied a report that it was preparing a rescue plan for the bank.

The lender rose 2 per cent after CEO John Cryan personally ruled out a possible capital increase, while the bank's balance sheet was boosted after it sold its British insurance business.

Deutsche faces a US$14 billion fine from the US Department of Justice for misselling mortgage-backed securities, and concerns over its funding depressed its shares to a record low on Tuesday.

Goldman Sachs, which has a neutral rating on Deutsche, estimated the German lender would eventually pay between US$2.8 and US$8.1 billion to settle the dispute, although the final outcome could be outside that range. "As confidence erodes, settling before year-end is important," Goldman added in a note.

Consultinvest fund manager Enrico Vaccari said sentiment was helped by a strong US consumer survey released on Tuesday afternoon, while investors' jitters surrounding the bank sector were soothed after Deutsche Bank CEO's remarks.

Banks are the worst performing sector in Europe so far this year and Vaccari said consolidation could help ease worries for an industry struggling to make more profit because of ultra low interest rates and sluggish growth. "Mergers are better than capital increases," he said.

Elsewhere in the sector, Royal Bank of Scotland rose 1 per cent after the British bank agreed to pay US$1.1 billion to settle claims that it sold toxic mortgage-backed securities to credit unions that later failed.

The pan-European STOXX 600 index rose 0.7 per cent, ending off its highs, with commodity-related stocks giving up some of their strong early gains.

Basic resource stocks nevertheless ended up 1.4 per cent, on the back of a rise in metals prices. Oil, however, gave up gains in volatile trade after mixed supply data, and the sector closed up just 0.7 per cent.

Among other big movers, TUI rose 1.3 per cent after the travel firm nudged up its full-year profit outlook, while Kone fell 2 per cent after the Finnish elevator maker kept its targets unchanged.

Sainsbury fell 3.9 per cent, the top STOXX 600 faller, after Britain's second biggest supermarket reported another drop in quarterly underlying sales and cautioned that it did not expect a change to competitive market conditions any time soon.