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 Deutsche Bank is expected to post quarterly pretax profit of 1.4
billion euros ($1.9 billion) on Tuesday, around 1 billion less than
a year earlier, the average forecast in a Reuters poll of banks and
brokerages showed on Friday.
Revenue declines in the fixed income, currencies and commodities (FICC)
business have already dogged investment banking results at peers
such Barclay's <BARC.L>, JPMorgan <JPM.N> and Citigroup <C.N>.
Declines in the business — traditionally the main money spinner at
Deutsche Bank — are seen hampering the lender's bid to build up its
capital cushion to meet tough new banking rules introduced in the
wake of the financial crisis.
"Deutsche Bank is rather weakly capitalized, and there is a weak
trend in fixed income and in investment banking, so that you can't
get much from retained earnings," said a German shareholder, whose
company policy does not authorize him to speak publicly.
CAPITAL WORRIES
Deutsche Bank managed to boost its core tier one ratio — a closely
watched measure of balance sheet strength — to 9.7 percent at the
end of 2013, but a raft of new banking rules are likely to bring the
ratio closer to 9 percent by next year and the lender still faces
litigation costs around the world as fallout from the financial
crisis, the investor said.
"A capital ratio of around 9 percent is simply too low for an
investment bank like Deutsche Bank," the investor said.
Worries about the capital cushion and dimming revenue prospects have
led to repeated speculation that Deutsche Bank would need to raise
equity capital before long.
Financial daily Handelsblatt on Friday reported the lender was
considering a capital increase of up to 5 billion euros this year to
cope with new regulations and European "stress tests" of the
industry, sending its shares down more than 2 percent.
The paper cited sources at the bank as saying that no decision had
been made but that Deutsche Bank's co-chief executives, Juergen
Fitschen and Anshu Jain, were thinking of a "Plan B" to give an
extra fillip to its efforts to close the gap with international
rivals in terms of capital strength. Deutsche Bank declined to comment on the report.
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Jain told Reuters earlier this year that his bank had not discussed
raising equity capital, though it was going ahead with plans to
bolster other forms of regulatory capital.
Germany earlier this month gave its banks long-awaited legal
certainty on the tax treatment of "CoCo" bonds that can be converted
into shares to bolster their capital, and Deutsche Bank is expected
issue this type of bond soon.
LESSER EVIL?
In light of Deutsche Bank's efforts to boost regulatory capital by
other means, investors said they did not expect an equity capital
hike in the near term.
"But it's always a question of the lesser evil," said Assenagon fund
manager Michel Huenseler. "On the one hand, the last capital
increase was very well received, but on the other, Jain seems to
have categorically excluded it."
Last year, Deutsche Bank raised 2.96 billion euros by selling 90
million shares.
Some analysts said an equity capital increase would put an end to
the uncertainty, which has dragged on the shares.
"We would welcome a capital increase with a volume of at least 5
billion euros as it would end concerns about Deutsche Bank's capital
level and would put the bank in a position to win market share again
instead of shrinking its balance sheet to improve capital ratios,"
said Equinet Bank's Philipp Haessler.
Deutsche Bank's shares were among the biggest decliners in Germany's
DAX bluechip index <.GDAXI>, down 2.4 percent to 31.20 euros by 1530
GMT, lagging a 1.2 percent decline in the DAX and a 1.6 percent drop
in the STOXX Europe 600 bank index <.SX7P>.
($1 = 0.7236 euros)
(Additional reporting by Christoph Steitz and Alexander Huebner;
editing by Stephen Coates, Jane Baird and Mark Potter)
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