Deutsche Bank Said to Get Backing for Stock Sale
Deutsche Bank AG Josef Ackermann
SeongJoon Cho/Bloomberg
Josef Ackermann, chief executive officer of Deutsche Bank AG.
Josef Ackermann, chief executive officer of Deutsche Bank AG. Photographer: SeongJoon Cho/Bloomberg
Deutsche Bank AG, Germany’s biggest bank, is close to lining up securities firms to underwrite a rights offer of about 9 billion euros ($11.5 billion), three people with knowledge of the talks said.
The price, final amount and banks arranging the sale are likely to be determined by Sept. 13, said the people, who declined to be identified because the matter is confidential. The shares may be offered to existing investors for 20 percent to 25 percent below the so-called ex-rights price, which excludes the value of the option to buy new stock, they said.
Chief Executive Officer Josef Ackermann may be planning the company’s largest-ever stock sale to boost its almost 30 percent stake in Deutsche Postbank AG and prepare for stricter capital rules, people with knowledge of the discussions said yesterday. The Basel Committee on Banking Supervision’s main governing body is meeting this weekend to agree on new rules that may require banks to boost reserves after the worst financial crisis since the Great Depression.
“A persistent ‘bear point’ on Deutsche Bank’s capital would be addressed while the visibility and a more balanced earnings mix would likely be well received,” said Matthew Clark, an analyst at Keefe, Bruyette & Woods in London who has an “outperform” rating on the stock, in a note to investors today.
Deutsche Bank spokesman Armin Niedermeier declined to comment today.
Fees Offered
Ackermann, 62, who has previously said the Frankfurt-based bank would only raise capital for acquisitions, is trying to lower dependence on investment banking, which accounted for 78 percent of pretax profit in the first half.
UniCredit SpA, which sold 4 billion euros of stock in January, offered shares at a 29 percent discount. Deutsche Bank may offer underwriters a fee of about 2 percent of the amount of the sale, along with a 0.25 percent performance bonus, the people said. Prudential Plc, the U.K. insurer which planned a $21 billion rights offer before abandoning a bid for American International Group Inc. in June, offered underwriters a commission of about 3 percent, people with knowledge of the agreement said in March.
A capital increase of 9 billion euros would be the biggest rights offer in Europe this year, data compiled by Bloomberg show. Companies planning to sell stock typically seek to find securities firms to guarantee the offering, agreeing to buy shares that investors don’t order.
Deutsche Bank fell 4.6 percent to 47.70 euros in Frankfurt trading.
Basel Rules
Germany’s 10 biggest lenders, including Deutsche Bank and Commerzbank AG, may need about 105 billion euros in fresh capital because of new regulations, the Association of German Banks estimated on Sept. 6.
Postbank’s Tier 1 capital ratio, a measure of financial strength, fell to 6.6 percent under the most severe scenario of the European Union stress tests conducted in July, compared with the 6 percent minimum required to pass. Deutsche Bank’s ratio, by contrast, stood at 9.7 percent under the toughest test.
The Basel committee reached a compromise on capital ratios for banks that will introduce higher reserve requirements over a five- to 10-year period starting in 2013, Franz-Christoph Zeitler, the vice president of Germany’s Bundesbank, said Sept. 8. The proposal will be the basis for a Sept. 12 meeting of global central bankers and regulators, and an announcement on the new rules may be made as early as that day.
More Capital
Policy makers are seeking to increase the capital held by banks to avoid a repeat of the financial crisis that caused writedowns and credit losses of almost $1.8 trillion worldwide, according to data compiled by Bloomberg. Deutsche Bank dodged the worst of the financial crisis and eschewed a state bailout.
If it conducted a 9 billion-euro capital increase, Deutsche Bank would have an estimated core Tier 1 capital ratio, which excludes hybrid instruments, of 9.2 percent, declining to about 7.5 percent after so-called Basel III rules are introduced, Bank of America Merrill Lynch analyst Derek De Vries wrote in a note to investors today.
“This would leave Deutsche less well capitalized than the Swiss banks, but broadly in line with global peers,” De Vries wrote. Such an offering would dilute the price-earnings multiple by about 20 percent, he said.
Postbank Options
Deutsche Bank agreed to buy a stake in Bonn-based Postbank in September 2008 from Deutsche Post AG and then renegotiated the transaction in January 2009 after the collapse of Lehman Brothers Holdings Inc. roiled financial markets.
In the first step, Deutsche Bank acquired a 22.9 percent stake from Deutsche Post, which it raised to almost 30 percent over time by purchasing additional shares on the market. Deutsche Bank also bought a mandatory exchangeable bond that will be converted into a 27.4 percent Postbank stake in February 2012.
Additionally, Deutsche Bank has an option to buy Deutsche Post’s remaining 12.1 percent stake between three and four years after the deal was completed in February 2009.
Deutsche Bank also has a so-called “open window” until Feb. 25, 2011, to make an offer for the remaining minority 30.6 percent stake at a minimum price of the three-month volume weighted average price of Postbank’s shares, which is currently 24.50 euros, according to Citigroup analysts.
This is “significantly” below the 45 euros that Deutsche Bank would have to offer subsequently based on the price of the mandatory exchangeable bond, Citigroup’s Lakhani wrote.
To contact the reporters on this story: Elisa Martinuzzi in Milan at emartinuzzi@bloomberg.net Aaron Kirchfeld in Frankfurt at akirchfeld@bloomberg.net
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