Deutsche Bank fell as much as 2.6 percent and declined 2.5 percent to 31.15 euros at 4 p.m. The shares have dropped 10 percent this year as the Bloomberg Europe Banks & Financial Services Index climbed 1.3 percent.
Management is considering selling about 5 billion euros ($6.9 billion) of shares, German newspaper Handelsblatt reported today, citing people it didn’t identify. No decision has been made and the sale may come either before mid-year or in the fourth quarter, it said. Michael Golden, spokesman for Deutsche Bank in London, declined to comment.
“Capital is the main overhang on the stock and some investors would prefer to see them raise capital and avoid the knock-on effects for their fixed income market share,” Jon Peace, an analyst at Nomura in London, who has a neutral stance on Deutsche Bank’s shares, said by telephone.
Co-Chief Executive Officers Anshu Jain and Juergen Fitschen have resorted to shrinking assets to bolster finances as fines resulting from global probes into manipulation of interest rates and misselling of mortgage products cut profit. The plan has cost market share in debt trading, a key driver of its revenue, as the bank scaled back operations.
Investors want the company to increase capital ahead of the results of a European Central Bank review of the continent’s biggest banks, which may result in demands to boost capital, the Financial Times reported yesterday. Several investors are dissatisfied with its failure to respond to capital weakness and mounting legal costs, it said.
“We would welcome a capital increase,” Philipp Haessler, an analyst at Equinet Bank AG, wrote in an e-mailed report from Frankfurt today. The sale of at least 5 billion euros of stock “would end concerns about Deutsche Bank’s capital level and would put the bank in a position to win market share again.”
Deutsche Bank ended last year holding less capital than all but two of the nine biggest European and U.S. investment banks, with a common equity Tier 1 ratio under Basel III rules of 9.7 percent, data compiled by Bloomberg Industries show. JPMorgan Chase & Co. and Barclays Plc (BARC) had lower levels.
The company needs to tap shareholders for about 10 billion euros, analysts at Mediobanca SpA (MB) said in an e-mailed report from London yesterday. That would allow the bank to avoid losing debt-trading market share while meeting new standards for valuing complex assets and cover legal costs, it said.
The lender raised almost 3 billion euros by selling shares at 32.90 euros apiece in April last year. Jain said in January he is focusing efforts to increase capital ratios by shrinking assets by 250 billion euros, or 16 percent, from last June through 2015.
“Deutsche Bank still has a capital shortfall,” Shailesh Raikundlia, an analyst at Espirito Santo Investment Bank in London who recommends investors sell the stock, said by phone today. “Management should have been more forthright when they sold shares last year. They haven’t dealt with capital issues and the market has come to realize that.”
UBS AG (UBSN) cut Deutsche Bank to neutral from buy this week on concern capital levels will decrease as the bank protects its bottom line by delaying cost-cutting. JPMorgan lowered Deutsche Bank to neutral from overweight on April 3 citing a “tight capital position” and market concern over capital risk.
Deutsche Bank posted a 1.36 billion-euro fourth-quarter loss last month as debt-trading revenue slumped 31 percent and the company added to its legal costs, which totaled 3 billion euros in the full year. JPMorgan is poised to usurp the firm as global leader in fixed-income as Jain and Fitschen focus on regulatory matters and withdraw from unprofitable businesses.
“Their story isn’t so attractive right now and I can’t imagine them selling shares unless they thought they were in danger of missing next year’s capital target,” said Andreas Plaesier, an analyst at M.M. Warburg in Hamburg. “A 5 billion-euro share sale would require a rights issue and you don’t want the effort and risk to your stock price that comes with that.”
Deutsche Bank has raised its common equity Tier 1 ratio under Basel III rules, a key measure of financial strength, from 7.8 percent at the end of 2012. While the lender expects to increase the ratio to more than 10 percent at the end of March next year, it sees “some volatility and potential downward pressure” in the coming quarters, Chief Financial Officer Stefan Krause said in January.
The bank is due to report first-quarter earnings on April 29.
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