German bank disputes talk of capital raising as shares fall to
the lowest in decades
By Jenny Strasburg in London and Andrea Thomas in Berlin
Intensifying concerns about Deutsche Bank AG's financial health
caused its shares to drop Monday and pushed the company into the
awkward position of publicly denying that it had sought help from
the German government.
Shares of Deutsche Bank, one of the world's largest banks and a
linchpin of Europe's financial system, tumbled 7.5% in European
trading, closing at EUR10.55 ($11.85), their lowest price in
decades. They have slid 53% this year, whittling Deutsche Bank's
market value to about $16 billion, roughly the size of regional
U.S. lenders like Fifth Third Bancorp and M&T Bank Corp.
The concerns -- voiced by a number of analysts and investors --
center on whether Deutsche Bank would need to raise capital to
fortify its precarious finances. The latest source of pressure is
the possibility of a multibillion-dollar legal settlement with the
U.S. Justice Department.
The mounting worries threaten to put the German government,
which has railed against taxpayer-financed banking rescues in other
European countries, in a tricky position.
A Deutsche Bank spokesman said Monday that the lender is
"fundamentally strong" and that questions about its capital
adequacy are "pure speculation."
Deutsche Bank's first option in raising capital to provide a
buffer against future losses likely would be to sell new shares to
investors. Such a move would hammer the bank's long-suffering
shareholders.
Deutsche Bank spokesman Jörg Eigendorf on Monday denied a German
media report that Chief Executive John Cryan had sought help from
the German government to resolve a U.S. mortgage-securities
investigation. The Wall Street Journal reported earlier this month
that the Justice Department proposed that Deutsche Bank pay $14
billion to settle the probes. The bank said it has no intention of
paying "anywhere near" the $14 billion amount and that negotiations
were just beginning.
Analysts say a fine of even half that size could force Deutsche
Bank to replenish its depleted capital cushions. The bank has
repeatedly said it has no immediate plans to raise capital.
Further complicating matters, the German government, led by
Chancellor Angela Merkel, has been a leading critic of taxpayer
bailouts of European banks. Germany has demanded that southern
European countries impose steep losses on the bondholders of
struggling banks as a precondition of them receiving
taxpayer-financed bailouts.
The hard-line stance has stirred resentment in many European
countries and would make it politically difficult for Germany to
come to the aid of one of its own banks without attaching similarly
draconian conditions.
A German magazine over the weekend reported that Ms. Merkel had
ruled out providing government assistance to Deutsche Bank before
Germany holds national elections next September. The report, citing
unnamed government officials, led a spokesman for Ms. Merkel to
tell reporters on Monday that there was "no need for such
speculation" about state aid for Deutsche Bank.
The report in Focus magazine nonetheless was seen as
contributing to Monday's selloff in shares of Deutsche Bank, which
analysts and investors have long assumed Germany would treat as too
big to fail if it encountered serious trouble.
Indeed, Deutsche Bank is central to Germany's economy, which is
Europe's largest. It is one of the country's largest employers and
lenders, and its CEO historically has been viewed as wielding power
on par with the country's finance minister.
Unlike many of its rivals, including Germany's No. 2 lender,
Commerzbank AG, Deutsche Bank avoided a bailout during the
financial crisis. That has been a point of pride for a succession
of Deutsche Bank CEOs.
But concerns about whether the bank has enough capital to
withstand the combination of a large Justice Department settlement,
weak business conditions and Mr. Cryan's plans to restructure the
company have been gaining currency -- and taking a toll on the
bank's securities.
It isn't only the bank's shares that are under pressure. Its
riskiest debt securities also have slumped. Deutsche Bank's $2
billion worth of certain additional Tier 1 debt fell about two
European cents on Monday, to around 73 cents on the euro, according
to Tradeweb data. The instruments are trading near levels they hit
in February, when Deutsche Bank faced a wave of capital concerns
and offered to buy back billions of dollars of its senior debt as a
show of confidence.
These instruments, known as AT1s, have helped Deutsche Bank
boost its capital levels, but they would be the first to absorb
losses if the bank collapsed. Interest payments on the AT1s are
optional, and Deutsche Bank has repeatedly assured investors this
year that it expects to have sufficient funds to pay interest on
schedule in early 2017.
The news that the Justice Department is seeking a $14 billion
settlement from Deutsche Bank rekindled concerns about the solidity
of that AT1 funding, analysts and investors say.
For months the lender has been trying to shrink and cut costs to
boost its capital to meet tougher regulatory hurdles ahead. It has
been seeking to sell businesses as part of a strategy announced by
Mr. Cryan in October 2015. But those goals also have been
challenged by tougher market conditions and other
complications.
One deal that the bank has announced, in late December 2015,
involves the sale of its roughly 20% stake in Hua Xia Bank, a
listed company in China. Deutsche Bank initially said it expected
the roughly $4 billion deal, involving the sale of the stake to a
Chinese insurer, to close by the end of the second quarter but in
July extended that timeline to the end of the year, saying a
three-month review by Chinese regulators would wrap up on Sept.
24.
That date passed with no announcement. Deutsche Bank has told
investors in recent days it still expects the stake sale to close
by the end of the year. Any questions about the deal wouldn't
normally by themselves stoke concerns, investors say. But the sale
is just one step among many Deutsche has outlined to meet its
capital goals.
A spokesman referred to statements by Marcus Schenck, Deutsche
Bank's finance chief, in July that despite the delay, the bank is
"still highly confident" in closing the Hua Xia sale by
year-end.
Write to Jenny Strasburg at jenny.strasburg@wsj.com and Andrea
Thomas at andrea.thomas@wsj.com
(END) Dow Jones Newswires
September 27, 2016 02:47 ET (06:47 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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