Deutsche Bank AG, Germany’s biggest lender, is said to have issued collateralized debt obligations, using a structure common before the credit crunch to shed its riskier assets and boost its capital ratio.
Institutional investors recently bought the products, which packaged asset-backed securities already on the bank’s balance sheet, said a person with knowledge of the transaction who requested anonymity because the matter is private. A Deutsche Bank official declined to comment.
The CDOs, representing $8.7 billion of risk, were sold in two tranches in dollars and euros, Frankfurter Allgemeine Zeitung reported earlier, citing people it didn’t identify. Buyers will receive a payment of 8 percent to 14.6 percent depending on how much risk they take on, the newspaper said.
“Until now, banks have had a hard time laying-off assets they don’t want to keep,” said David Watts, a credit strategist at CreditSights Inc. in London. “The traditional way of banks getting rid of them is to securitize them. These things sound as if they have tasty yields, but there tends to be a good reason for that.”
CDOs pool fixed-income securities and slice them into segments of varying risk and return. They proved popular before 2008 among yield-hungry investors until demand shrivelled as the real estate crash and downfall of Bear Stearns and Lehman Brothers Holdings Inc. pushed money managers into safer assets such as U.S. Treasuries.
Deutsche Bank’s deal is another example of the return of structures killed off by the worst financial crisis since the Great Depression.
London-based asset manager Cairn Capital Ltd. is raising a new, 300.5 million-euro ($402 million) collateralized loan obligation, the first European deal since June 2011, three people with knowledge of the matter said.
In the U.S., firms including Redwood Trust Inc. have started selling CDOs backed by commercial real estate debt for the first time since the crunch, with Royal Bank of Scotland Group Plc predicting issuance will climb to as much as $10 billion in 2013, 10 times last year’s figure.
Deutsche Bank established its non-core operations unit last year to wind down 125 billion euros of risk-weighted assets it deems not central to its business. The Frankfurt-based lender plans to reduce that volume, which includes assets ranging from securitized positions to a Las Vegas casino, to 90 billion euros by the end of March.
The bank has said it would boost its core Tier 1 capital ratio, a measure of financial strength, to 7.2 percent as of Jan. 1 when factoring in stricter rules for reserves. Deutsche Bank is scheduled to update investors on the plan on Jan. 31.