Deutsche Bank Sells Abbey Life Unit to Phoenix for $1.2 Billion--Update

By Jenny Strasburg in London and Andrea Thomas in Berlin

Deutsche Bank AG said Wednesday it sold its U.K.-based Abbey Life insurance unit to Phoenix Group Holdings Ltd. for $1.2 billion, boosting the German lender's capital cushion slightly at a time of intense focus on its financial health.

Shares of Deutsche Bank, which have fallen sharply in recent weeks over questions about its capital position, were up more than 2% in late-morning trading Wednesday in Europe, to EUR10.75.

The deal will result in a roughly $897 million pretax loss for Deutsche Bank from goodwill and other write-downs, but the bank said overall the sale would add 0.1 percentage point to a closely watched capital measure, its common equity Tier 1 capital ratio. That ratio stood at 10.8% at midyear.

Deutsche Bank executives have faced increasing pressure to reassure investors of the bank's stability in recent weeks. They denied this week that the lender sought help from the German government in negotiating a potential multibillion-dollar U.S. legal settlement, responding to a German media report.

John Cryan, Deutsche Bank's chief executive, on Wednesday in an interview in the German newspaper Bild also denied that he had asked Chancellor Angela Merkel for financial support for the bank and said the bank doesn't need it.

A looming financial settlement with the U.S. Justice Department has pushed down Deutsche Bank shares since The Wall Street Journal reported Sept. 16 that U.S. authorities sought $14 billion from the lender to close mortgage-securities probes. Deutsche Bank said it doesn't intend to pay "anywhere near" that amount, and said its negotiations with the Justice Department were just starting.

But the prospect of even a smaller fine that could swallow Deutsche Bank's legal reserves has continued to concern investors.

The swirl of speculation around Deutsche Bank has been relentless. Another German media report on Wednesday said the German government and regulators were preparing a rescue plan for the lender that could involve the government's taking a 25% stake in the bank. Germany's finance ministry denied the report, published in Die Zeit weekly. Die Zeit, citing unnamed sources, said contingency plans also could involve Deutsche Bank's selling off parts of its business to other companies.

"This report is wrong. The government isn't preparing any rescue plan," said finance ministry spokeswoman Nadine Kalwey. "There is no reason for any such speculation. The bank has explicitly stated this."

The bank has set a goal of reaching a common equity Tier 1 ratio of 12.5% by 2018. To get there it has to conserve or bring in new capital such as by sharply cutting costs or raising money from investors.

Economic headwinds and weak profits in its core businesses have made the job harder over the past year. The bank's distressed share price makes raising equity an unattractive option. Executives have repeatedly said they have no plans to issue shares.

On Wednesday, Mr. Cryan said selling Abbey Life, besides helping the bank's financial position, will allow its asset-management arm to focus on core businesses.

For Phoenix, Abbey Life will add around $13 billion of assets under management, 735,000 new policyholders and boost cash flow to support planned dividend increases. The purchase will be partly funded through a more-than $900 million rights issue. It is subject to regulatory approval.

As part of the transaction, Deutsche agreed to indemnify Phoenix to cover as much as roughly $228 million in potential costs stemming from a U.K. regulatory investigation into Abbey Life's annuity sales and other practices

Madeleine Nissen contributed to this article.

Write to Jenny Strasburg at jenny.strasburg@wsj.com and Andrea Thomas at andrea.thomas@wsj.com

(END) Dow Jones Newswires

September 28, 2016 08:19 ET (12:19 GMT)

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