Deutsche Bank on Sunday unveiled an €8bn capital increase and its latest sweeping strategic overhaul, as chief executive John Cryan seeks to put Germany’s biggest bank “back on the front foot” after a year of turmoil.
The moves, some of which reverse changes to the structure of businesses announced only 18 months ago, come after a year when Deutsche was caught up in two brutal market sell-offs.
Investors fretted in February 2016 the bank might miss payments on some of its securities, and in September that a big US misconduct settlement might leave it critically short of capital.
Having resolved some of Deutsche’s biggest legal headaches more cheaply than feared in the past two months, Mr Cryan sought on Sunday to lay concerns over the bank’s capital to rest, announcing its third capital raising in four years as well as €2bn worth of asset sales over the next two years, including the sale of a minority stake in Deutsche’s asset management arm.
The capital increase — via a rights issue of up to 687.5m new shares at a discount of 39 per cent to Friday’s close of €19.14 — should boost Deutsche’s core capital ratio, which stood at 11.9 per cent at the end of last year, to about 14.1 per cent on a pro forma basis. Deutsche will now target a capital ratio of “comfortably above 13 per cent” in future.
Alongside the capital raising, Deutsche will shrink its four divisions to three. Mr Cryan said the overhaul was “a significant step forward on the path to creating a simpler, stronger and growing bank”.
It will recombine the markets and corporate finance businesses split in October 2015. Postbank, put up for sale in April 2015, will now stay and be fully integrated with Deutsche’s other retail banking operations. Asset management will form the third pillar of Deutsche’s strategy. The restructuring will cost €2bn.
Coming just weeks after a €13bn rights issue from UniCredit, Italy’s biggest lender, Deutsche’s move is the latest sign of how European banks are still grappling with the aftermath of the financial crisis, even as their US peers are considering returning significant amounts of cash to shareholders.
Nonetheless, Ingo Speich, a portfolio manager at Union Investment, one of Deutsche’s top 25 shareholders, said Deutsche was making the right moves given it had not found a buyer for Postbank, even though it would be painful for shareholders.
“Now that the bank has got its biggest legal risks out of the way, it is the right time for the bank to have a look at its strategy and raise the capital it needs to support it,” he said.
A reshuffle of top executives will accompany the overhaul. Marcus Schenck, chief financial officer, and Christian Sewing, who heads its retail bank, will be made deputy chief executives, putting the Germans in pole position to succeed Mr Cryan when he steps down.
Mr Schenck will also become co-head of Deutsche’s reassembled investment bank, alongside Garth Ritchie, who currently heads the bank’s markets arm. The bank has begun a search for his successor as CFO. Mr Sewing will continue to head the retail business, to be joined by Frank Strauss, head of Postbank. Nicolas Moreau will continue to lead asset management.
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