The man who is providing Deutsche Bank AG with a 2.1 billion-euro ($2.9 billion) cash infusion, and a vote of confidence, held talks with banks about getting a loan to finance the investment and to hedge it.
Former Qatari Prime Minister Sheikh Hamad Bin Jassim Bin Jabr Al Thani was approached by banks offering loans to fund the purchase as well as derivatives to protect him from losses on the shares he purchased, said four market participants who asked not to be identified because they weren’t authorized to speak publicly. Two of the participants said they were told Qatar National Bank agreed to provide a $2 billion margin loan.
An official at Sheikh Hamad’s office in Doha declined to comment on the talks, as did representatives for Qatar National Bank and Frankfurt-based Deutsche Bank.
If Sheikh Hamad’s investment turns out to have been structured to limit his financial risk in the stock, that would be a red flag, according to Peter Hahn, a finance lecturer at London’s Cass Business School.
“That should be a concern for all Deutsche Bank shareholders,” Hahn said. “What sounded like a vote of confidence may be a hedged bet.”
In a margin loan, a borrower pledges an asset to obtain money and typically agrees to hand over cash to the lender if the value of the collateral declines. The lender typically can sell some of collateral if the borrower is unable to post cash.
To be sure, it’s not unusual for investors -- including sovereign wealth funds -- to borrow and seek to hedge their holdings, and banks would push to sell deals like this because of the lucrative fees they can earn from arranging the derivatives used in the transactions.
“There’s a growing trend among sovereign wealth funds to buy on margin,” said Bernardo Bortolotti, director of the Sovereign Investment Lab, a research unit at Bocconi University in Milan. “An investment of this magnitude is rare, and it’s likely to attract significant interest for financing from banks seeking fees.”
Sheikh Hamad, 55, is returning to dealmaking as a private investor, a year after his ouster as prime minister and head of Qatar’s sovereign wealth fund. When running Qatar’s $100 billion investment pool, he oversaw investments in banks including Barclays Plc, Britain’s second-biggest bank by assets, and Credit Suisse Group AG (CSGN), Switzerland’s second-biggest lender.
Qatar shielded itself from potential losses on previous investments in Barclays and Credit Suisse through derivative instruments, warrants and high-yielding convertible bonds, according to a person with knowledge of the matter. A spokesman for the Qatar Investment Authority didn’t immediately respond to requests for comment.
Deutsche Bank, Germany’s biggest bank, is relying on the Qatari investment to secure an 8 billion-euro stock offering that will shore up the lender’s capital. The share sale is crucial to the bank’s ability to meet stricter rules on capital and retain its position as a global bank, co-Chief Executive Officer Juergen Fitschen told shareholders at the annual meeting on May 22.
Sheikh Hamad’s Paramount Holdings Services Ltd. agreed to buy 60 million Deutsche Bank shares at 29.20 euros, the Frankfurt-based bank said May 18. The shares rose 0.6 percent to 29.72 euros in Frankfurt yesterday, valuing the lender at about 30.3 billion euros. Deutsche Bank will start offering the remaining stock to shareholders today.
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