FRANKFURT/LONDON (Reuters) - Deutsche Bank's chief executive sought to reassure his staff on Friday that Germany's largest lender remained robust, telling them that the departure of any hedge fund clients was small compared to the bank's vast customer base.
However, Deutsche shares fell almost eight percent to another record low, adding to the sense of crisis around the bank triggered by a $14 billion demand from the U.S. authorities for misselling mortgage-backed securities.
The German government this week denied a newspaper report that it was working on a rescue plan for the bank whose problems are sending tremors through global markets.
Chief Executive John Cryan's letter, seen by Reuters, addresses reports of the departure of "some few" hedge fund clients, blaming "speculation" and "certain forces" for what he called unsettling media coverage.
People familiar with the matter told Reuters that one large hedge fund in Asia had pulled out collateral from Deutsche amounting to $50 million in the last two days, while other sources said this had happened elsewhere, albeit on a small scale.
On Friday, Cryan sought to put the moves into perspective.
"We should look at the complete picture," Cryan said in the letter to the bank's workforce of around 100,000.
"Deutsche Bank has more than 20 million customers."
Cryan said the bank was stable, with a sufficiently large capital cushion. "We are and remain a strong Deutsche Bank."
The falling share price and market jitters, however, told a different story.
Deutsche's 'CoCo' bonds slumped to a record low on Friday, with the 6 percent coupon CoCo trading as low as 69.55 cents on the euro -- down from 83 cents earlier in September.
Contingent convertible bonds, known as CoCos, are converted into equity when a bank's capital level falls below a certain threshold.
"It doesn't matter whether the bank is in real trouble or not, as long as people think it is, then it is bad news," said Rabobank markets strategist Lyn Graham-Taylor.
One executive working with hedge funds at a rival firm said: "We are seeing billions in balances moving in from Deutsche Bank but this is a drop in the bucket given the size and scale of their prime brokerage business."
"It's not a run on the bank by any means," said the executive, who asked not to be named because of the sensitivity of the matter.
Barry Bausano, chairman of Deutsche's hedge fund business, told CNBC that its prime brokerage division, which services hedge funds, was "still very profitable" but said there was "no question we have a perception issue."
(Additional reporting by Jonathan Gould, Georgina Prodhan, Kathrin Jones and John Geddie in Frankfurt; Writing By John O'Donnell; Editing by Keith Weir)