Shares in Deutsche Bank fell 6 per cent yesterday after it announced a larger than expected rights issue and other restructuring measures to shore up its finances.
The €8 billion cash call from Germany’s largest bank puts it on course to have raised more than its €26 billion market capitalisation. Deutsche’s shares fell by more than 1 per cent on Friday on reports it was considering raising fresh capital.
As well as asking shareholders for extra cash Deutsche has reversed its previous strategy and decided to hang on to its consumer lender Postbank, after failing to sell it at an acceptable price. It now wants to reintegrate it into its other German retail banking business.
Deutsche is planning to float a minority stake in its asset management business, including its DWS retail asset management, within two years, which analysts have said is worth €8 billion.
The latest plan received muted support from analysts. Carlo Mareels, a credit analyst at MUFG, said: “The €8 billion capital increase is way more than anyone anticipated and the partial flotation of Deutsche Bank Asset Management is further going to add to the capital strength (offsetting the severance and restructuring costs) without giving up the full benefit of the revenue and profit stream of Deutsche’s most profitable business.”
Kian Abouhossein, head of JP Morgan’s European banks equity research team, said the steps took Deutsche “in the right direction”.
Deutsche had previously said that it would wait until global bank capital rules were finalised before setting out how it intended to turn its business around and John Cryan, its British chief executive, had said that a cash call was a last resort. However, Mr Cryan decided to press the button after international regulators failed to agree on new capital rules earlier this year.
The moves should take Deutsche’s core capital ratio — a key measure for regulators — above 13 per cent from 11.9 per cent at the end of last year.
Deutsche has promised to restart “competitive” dividends from 2018. That may help to sweeten the pill for investors who have heavy dilution of their holdings. The bank hopes that the rights issue will finally end speculation that its capital levels are too low.