Deutsche Bank AG investors are divided over how Germany’s biggest bank should raise capital, with some shareholders favoring its plans to avoid a share sale, said co-Chief Executive Officer Anshu Jain.
“I’m getting two responses,” Jain said today at a conference hosted by Bank of America Corp. in London. Jain said he met with investors since unveiling the firm’s strategy on Sept. 11 and that those who “have been with us” told Deutsche Bank “without exception that they applaud management’s commitment to grow this capital organically.”
Deutsche Bank, based in Frankfurt, accelerated plans this month to cut assets deemed among its riskiest under rules devised to prevent a repeat of the bank rescues that followed the 2008 collapse of Lehman Brothers Holdings Inc. Jain has said that while capital concerns have had an effect on the stock, tapping shareholders would be “irresponsible” without pursuing other options first.
The desire of share-sale proponents “to get us to raise capital comes principally from investors who would like to invest at a lower price, which we understand as well,” Jain said. Shareholders who oppose a stock sale “think our strategy is realistic,” he said.
The bank plans to boost core tier 1 capital to at least 8 percent of assets weighted by risk under full Basel III rules by the end of March 2013, and to more than 10 percent two years later, Jain and co-CEO Juergen Fitschen said Sept. 11 in Frankfurt. Deutsche Bank’s biggest rivals are forecasting they will reach similar levels months or years sooner.
Deutsche Bank has a “very strong funding level and funding diversification,” so the bank can have lower capital ratios than some peers, Jain said at the conference.
Deutsche Bank may take a higher proportion of the 500 million euros ($646 million) in costs tied to strengthening its capital in the third quarter than the firm anticipated, Jain said. He reiterated a statement he made this month that revenues in the three months through September were “solid” and matched the bank’s expectations.
Separately, Jain called on investors to demand banks follow Deutsche Bank’s plans in changing their compensation policy. The bank is targeting an after-tax return on equity, or ROE, of at least 12 percent by 2015 as management overhauls the firm’s compensation system and reduces headcount and costs.
“We have taken a bigger first step than most of our competitors,” he said. “Is there a risk that our competition doesn’t follow suit? Only if you are willing to accept low ROEs with unchanged compensation practices elsewhere.”
The bank said Sept. 11 that it will increase the vesting period for deferred bonuses for about 150 members of senior management to five years from three. The company will also appoint an external panel to review compensation structures, whose findings will influence pay for this year.