Deutsche Bank said on Friday night that it was laying the groundwork for a “potential capital raise of approximately €8bn” as well as considering several other strategic adjustments as it aims to revive its fortunes after a torrid 12 months.
Alongside the capital increase, Germany’s biggest lender said it could garner further funds by selling a minority stake in its asset management arm.
It is also considering keeping and integrating Postbank, the German post office bank it said in April 2015 it intended to sell. Also on the table is a recombination of its markets division and corporate finance arm, having split them in October 2015. Such a move would allow it to capitalise on the upturn in the investment banking market.
A person familiar with the situation said the recombined division, which will also house Deutsche’s transaction banking unit, was likely to be headed by Marcus Schenck, Deutsche’s chief financial officer, and Garth Ritchie, who is in charge of its markets business.
Deutsche said a final decision had not yet been taken on any of the options and that implementation was “subject to market conditions” and approval by the bank’s top management and its supervisory board, which is due to meet later this month.
Deutsche’s capital position has been a perennial concern for shareholders, and the bank tapped investors for cash in 2013 and 2014 as it tried to lay the issue to rest. However, over the past two years its capital position has again come under increasingly intense scrutiny as the bank has racked up multibillion-euro losses in the face of huge litigation and restructuring charges.
Concerns over Deutsche’s financial position reached a height last September, when the German government was forced to deny it was planning a rescue for the bank to help it cope with a big penalty from the US Department of Justice over allegedly mis-selling mortgage-backed securities in the run-up to the financial crisis.
Deutsche subsequently reached a deal with the DoJ to settle the allegations for $7.2bn, far less than feared, and in January also went some way to resolving another of its biggest legal headaches by agreeing to pay $630m to settle US and UK investigations into alleged mirror trades used to launder $10bn out of Russia.
At the end of December its core capital ratio stood at 11.9 per cent, comfortably above the minimum required by regulators, but shy of the levels reached by peers such as UBS and Morgan Stanley, and short of the 12.5 per cent Deutsche itself is targeting for the end of 2018.
Ingo Speich, a portfolio manager at Union Investment, one of Deutsche Bank’s top 25 investors said resolving its bigger legal concerns had paved the way for the bank to consider a capital increase.
“It’s not a surprise that they are considering a capital increase as their capitalisation is relatively weak in comparison with many of their peers,” he said.
“But whatever capital measures they take, they also still need to spell out to investors what they think their capital requirements will be in future. Is [Deutsche’s current target of] a core tier one ratio of 12.5 per cent still enough? Or is it a bit thin?”
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