Deutsche Bank plans $8.5 billion share sale

Deutsche Bank launches $8.5bn share sale; plans to sell stake in key unit. Deutsche Bank said it will keep its Postbank consumer division and cut total costs to €22bn by 2018.Deutsche Bank launched a €8bn ($8.5bn) share sale and said it plans to sell a stake in its asset management unit in the next two years as Germany’s largest lender seeks to shore up capital after two consecutive years of losses.

The bank said it will keep its Postbank consumer division and cut total costs to €22bn by 2018, the Frankfurt-based company said in a statement yesterday. The lender will propose a dividend in May of €0.19 per share and is recombining its investment banking and trading units.


The measures mark a reversal for chief executive officer John Cryan, 56, who had unsuccessfully sought to sell Postbank to avoid tapping shareholders. Deutsche Bank has posted more than €8bn of net losses in the past two years as Cryan, who took over in 2015, settled misconduct investigations and scaled back capital-intensive debt-trading businesses. The bank said the share sale would boost its common equity Tier 1 ratio to 14.1% and set a new target of “comfortably above” 13%. The measure stood at 11.9% at the end of 2016, shy of the then-target of 12.5% for the end of 2018.
Losses and mounting legal bills raised doubts about Deutsche Bank’s financial strength, which intensified after the US Justice Department in September demanded $14bn to end an inquiry into mortgage securities that fuelled the 2008 financial crisis. Investors were relieved when the settlement in December came at about half that amount.
That’s helped almost double the lender’s share price since September 26 and made a potential stock sale more attractive. Prior to the plan announced on Friday, Cryan had been focused on selling Postbank to raise capital. But the bank has been unable to find a buyer for the unit, which employs 18,000 people. Deutsche Bank fell 1.3% to close at €19.14 in Frankfurt on Friday, and shares traded in the US continued to drop. The stock trades at about half the bank’s tangible book value, below European peers including UBS Group, which trades at 1.3 times book, and France’s BNP Paribas at 0.9 times book.
While Cryan, 56, has focused on improving internal controls and scaling back capital-intensive debt-trading businesses since taking over in 2015, some investors and clients aren’t convinced the overhaul will restore profitability. Deutsche Bank lost market share in the fourth quarter as mounting legal costs fuelled concern about its financial strength.
“The capital increase is the right way to go,” Andreas Plaesier, an analyst at Warburg Research said by phone. “Timing is important too given the fact that other European banks may need more capital,” he said. Deutsche Bank also is studying management changes, including a new role for chief financial officer Marcus Schenck, people familiar with the matter said on Friday. Schenck and Christian Sewing, who oversees wealth management and consumer banking, may be named co-deputy CEOs, positioning them as potential successors to Cryan, according to one person briefed on the discussions.
The firm is weighing recombining its investment-banking and trading divisions, with Schenck overseeing the business alongside Garth Ritchie, one of the people said. Jeffrey Urwin, who runs the investment-banking unit, plans to leave, according to the person. Doubts about Deutsche Bank’s financial strength intensified after the US Justice Department in September demanded $14bn to end an inquiry into mortgage securities that fuelled the 2008 financial crisis. Investors were relieved when the final settlement in December came at about half that amount. That’s helped almost double the lender’s share price since September 26 and made a potential stock sale more attractive. Prior to the plan announced on Friday, Cryan had been focused on selling Postbank to raise capital. But the bank has been unable to find a buyer for the unit, which employs 18,000 people.
“A capital increase is probably the best option given the alternatives. Everything else would cut into real business,” said Michael Huenseler, an investor at Assenagon Asset Management, which has stock in Deutsche Bank. “But it will be an enormous dilution for shareholders at the current price-book ratio.” Deutsche Bank’s asset-management unit had seen six consecutive quarters of net money outflows by the end of last year. Division head Nicolas Moreau, who joined the business in October, has pledged to reverse the trend.
Deutsche Bank’s management board earlier planned to wait for the completion of new banking standards that could force the firm to hold yet more capital, including for Postbank, before finalising fresh measures. After failing to deliver a deal in early January, the Basel Committee of global banking supervisors once again left the table this week without an agreement, fuelling uncertainty over the timing.