FRANKFURT (Reuters)
—
Deutsche Bank has asked shareholders for 8 billion euros
($11 billion) in new cash to strengthen its balance
sheet ahead of European stress tests and to help fund an
expansion in U.S. investment banking as its rivals
retreat.
Qatar's royal family will become a major investor in Germany's
largest bank under the plan, unveiled as Deutsche Bank delayed or
diluted most of its 2015 turnaround targets, saying the cost of
scandals and new capital rules would remain high.
The capital increase gives Deutsche firepower for the investment
banking drive after a pull-back by Barclays <BARC.L>, UBS <UBSN.VX>
and others left a gap that it aims to fill as Europe's top debt
trader.
But it also underscores how the bank has fallen short of
profitability targets and how burdensome fines and settlements and
lagging profitability have hampered management's efforts to fortify
capital by retaining earnings.
Deutsche Bank said it would focus on an "accelerated growth program"
by hiring top bankers in the United States, investing some 200
million euros to overhaul retail operations in Germany and Europe,
and will hire up to 100 advisers to support its biggest corporate
clients.
It also aims to expand its wealth management team in the United
States and key emerging markets over three years.
The decision to expand comes as the industry reels from a sharp drop
in debt and currency trading revenue and new regulatory hurdles
diminish returns from many areas of investment banking.
Deutsche shares fell 2.3 percent in early trading, its lowest since
April 2013, before recovering to trade down 1.5 percent, in line
with European rivals.
"The thicker capital base should give the bank strength to attack in
investment banking - but whether it will be successful depends on
market developments and action taken by central banks," said Lutz
Wockel from fund manager NordLB Asset Management.
Co-Chief Executive Anshu Jain denied the new capital increase -
which came just over a year after another 3 billion euro cash call -
was forced upon the bank by regulators.
"There was absolutely no reason for any regulator to contact
Deutsche Bank on any of its key performance criteria. Both our core
tier 1 ratio and our leverage ratio were well in compliance with any
regulatory standards," Jain told analysts.
QATARIS DID NOT ASK FOR BOARD SEAT
The new money helps the bank bolster the capital ratios used by
regulators as the European Central Bank runs the region's top banks
through rigorous checks before it becomes the euro zone's leading
banking watchdog in November.
A stake worth 1.75 billion euros has already been placed with an
investment vehicle owned and controlled by Sheikh Hamad Bin Jassim
Bin Jabor Al-Thani of Qatar, Deutsche Bank said in a statement on
Sunday. It plans to raise another 6.3 billion euros in a rights
issue to existing shareholders.
The Qatari investor has not requested a seat on the board, nor was
any special fee or protection against a dilution as a result of the
rights issue offered to the investor, a source close to the
transaction said. "They're an investor like anyone else."
The capital measures will increase Deutsche Bank's Common Equity
Tier 1 ratio, a measure of a bank's ability to withstand stress, by
approximately 230 basis points, from 9.5 percent at the end of the
first quarter of 2014 to 11.8 percent.
That is closer to the level already held by rivals such as UBS,
which last posted a CET1 measure of 13.2 percent. Credit Suisse last
posted a ratio of 10.0 percent, which is due to rise to over 16
percent due to regulatory requirements by 2019. Barclays stood at
9.6 percent at end-March but aims for 11 percent by 2016.
"Up to now, Deutsche Bank has done what was necessary but never
more," said Stefan Best, managing director at Standard & Poor's.
"But the market expects more."
The announcement of the capital hike came only four days ahead of
the bank's annual general meeting, where shareholders are likely to
register a mixture of displeasure and grudging acceptance over the
hefty capital increase.
SLIPPING PERFORMANCE
As it asked for more money, the bank also weakened reform targets it
had set out in 2012 as part of a turnaround plan. A post-tax return
on equity of 12 percent will come in 2016, the bank said, one year
later than previously promised.
Likewise, it now says a cost-income ratio of 65 percent originally
envisaged for 2015 will only come in 2016. The ratio was last
measured at 77 percent at end-March.
Until now, Deutsche Bank had targeted a core tier 1 equity ratio of
10 percent under the Basel III bank rules in their most stringent
form as of March 2015. It had aimed at achieving that mainly by
retaining earnings.
"The capital hike has now been taken care of but the goals still
seem ambitious," said one top ten investor in the bank who requested
anonymity. "You don't buy Deutsche Bank shares these days for the
dividend but as a bet on big share-price increases."
In slides for an investor presentation, Deutsche said it expected
the pricing of a separate, previously announced hybrid bond worth at
least 1.5 billion euros to come before Thursday this week, when
management presents its plans to shareholders.
The so-called AT1 bond issue volume is expected to amount to at
least 1.5 billion euros.
(Additional reporting by Arno Schuetze; editing by Tom Pfeiffer)
Qatar's royal family will become a major investor in Germany's
largest bank under the plan, unveiled as Deutsche Bank delayed or
diluted most of its 2015 turnaround targets, saying the cost of
scandals and new capital rules would remain high.
