DOHA/FRANKFURT: Deutsche Bank has secured support from its largest shareholder and more German lawmakers as it grapples with a confidence crisis following U.S. authorities’ demands for up to $14 billion to settle allegations it mis-sold mortgage-backed securities. Qatari investors who own the largest stake in Deutsche Bank do not plan to sell their shares and could consider buying more if the embattled German bank decides to raise capital, sources familiar with Qatari investment policy told Reuters.
“Purchasing more [Deutsche Bank] stock – that could be considered ... which is not to say there are any imminent plans to do that,” said a source close to the Qatari investors who own just below 10 percent in Deutsche Bank. The source declined to be identified as the matter is confidential.
If a capital hike does turn out to be required, the Qatari investors would probably take part in it as they want to keep their roughly 10 percent stake, a second source close to the matter added.
Deutsche shares plunged to record intraday lows below 10 euros last week Friday and although they have since rebounded to just above 12 euros ($13.38), they are 13 percent below last month’s peak and 46 percent below their close at the end of last year.
That implies the Qataris may have lost, on paper, over $1.2 billion on their investments in the bank.
Deutsche Bank head John Cryan, who is attending the International Monetary Fund and World Bank’s autumn meetings in Washington, is due to meet with the Department of Justice as well as with senior managers of other investment banks in the U.S. to discuss the lender’s options, people familiar with the schedule of Cryan’s U.S. trip said.
However the talks with other bankers are expected to focus on immediate steps the German bank may be able to take such as asset sales, rather than asking shareholders for fresh cash. “The cap hike issue will unlikely be the focus of most of those meetings,” one of those people said, adding that pulling off a capital raising deal would be a well-rehearsed exercise which does not need too much advance discussion.
Separately, German Economy Minister Sigmar Gabriel said Friday that while Deutsche Bank faced enormous challenges with potential fines in the United States, moves by its leadership to change the bank’s business model showed the bank was reacting to the risks it faced.
Gabriel said the government did not have its own risk assessment for the bank but that Germany was keen to see the bank succeed in the longer term. “It’s completely obvious that we have an interest in Deutsche Bank again becoming a stable financial institution that is successful nationally and internationally.”
Germany’s flagship bank is under heavy pressure as it fights the penalty of up to $14 billion that the U.S. Department of Justice plans to impose for misstating the risks of securities the bank sold ahead of the 2008-2009 financial crisis. The setback sent its shares to a record low last week and worried clients.
Deutsche says it expects to settle with the DOJ for far less than $14 billion, in line with other big banks that negotiated smaller fines over similar allegations.
IMF chief Christine Lagarde gave Deutsche Bank some tough advice Thursday, saying it needed to reform its business model and rapidly reach a deal with U.S. regulators over a potentially huge fine.
Jeroen Dijsselbloem, the chairman of the Eurogroup of Finance ministers from the countries that use the euro common currency, said the $14 billion U.S. fine demand was too big and potentially damaging to financial stability.
Deutsche is in the midst of a deep overhaul that includes slashing jobs from a workforce of around 100,000, revamping information technology and shrinking noncore assets. In contrast to some European peers, it is sticking with its strategic focus on investment banking, with a global reach that the IMF says makes it among the riskiest of all banks.
Launching a capital increase before a settlement with U.S. authorities on the mortgages case is deemed impossible as few investors will be willing to buy shares without being able to gauge the impact on the lender’s capital, equity capital markets bankers said.
“And even when a settlement is eventually reached, Deutsche Bank is likely to wait for its share price to recover before launching a cap hike. Currently it would only be able to raise 4.5-5 billion euros and they may want more,” one banker said, referring to Deutsche Bank shareholders’ authorization on capital issuance and a likely discount on new shares of 20-30 percent.
“A cap hike could be done in the first half of 2017 at the earliest,” another banker said.
Deutsche Bank is a global equity capital markets powerhouse itself, ranked seventh worldwide according to Thomson Reuters data, so it has the necessary expertise itself to prepare for a capital increase.
When planning a rights issue Deutsche Bank will, however, rely on help from other investment banks. In 2014, 25 banks helped it pull off a rights issue.
Most of the banks will be called in just days before the deal, which will likely be structured as a fully underwritten rights issue with banks guaranteeing to take on shares to sell on to investors.
“At this stage, no bank has gotten any mandate for a cap hike,” a person close to Deutsche Bank said.
The bulk of new shares would probably be bought by the usual mix of investment funds, pension funds and hedge funds.
However, at the same time, some of Germany’s top industrial companies have revived a decades-old network to discuss taking a direct stake in the lender as a way to help shield the bank, one executive at a large DAX-listed company has said.