- Co-CEO Cryan wants to raise capital without selling shares
- Bank made progress on lifting equity levels with asset sales
Deutsche Bank AG co-Chief Executive Officer John Cryan is convincing some analysts that he can lift the company’s capital levels without a share sale.
Analysts tracked by Bloomberg are the most optimistic on the shares since March after three upgrades this month. Deutsche Bank is “overly discounted” and its capital is probably sufficient, Jeremy Sigee, an analyst at Barclays Plc, wrote in a note on Thursday after raising the German lender to overweight from equal weight.
Cryan, who took over from Anshu Jain in July, is selling assets, reducing bonuses and plans to suspend the company’s dividend to help to raise capital buffers without tapping shareholders for additional funds. His predecessor sold 11.5 billion euros ($12 billion) of shares in 2013 and 2014 to increase capital levels and fund growth, angering some investors by diluting their holdings.
“We believe share count dilution risk is off the table for Deutsche Bank,” Kian Abouhossein and Amit Ranjan, analysts at JPMorgan Chase & Co. with an overweight recommendation on the shares, wrote in a note on Wednesday.
Deustche Bank has slumped about 13 percent in the last year, more than twice the 5.7 percent decline of the 45-member Stoxx Europe 600 Banks Index over the same period. The stock fell 3.1 percent to 20.96 euros as of 11:06 a.m. in Frankfurt, giving the bank the lowest price to book ratio of 12 global lenders.
Cryan, who previously helped return UBS Group AG to health after a bailout during the financial crisis, told analysts in a call after taking over the job in July that raising additional capital “would not solve our core problem of reversing our low financial returns and our poor organic capital generation.”
In October, Deutsche Bank said it will probably suspend its dividend for two years to help boost the common equity Tier 1 ratio, a measure of financial strength, to at least 12.5 percent by the end of 2018. Last month, the lender agreed to sell its 20 percent stake in Huaxia Bank Co. to PICC Property and Casualty Co., raising further capital.
Four out of five analysts surveyed by Bloomberg expect Deutsche Bank to surpass its capital target for 2018. On average, the analysts expect the CET1 ratio to rise to 13.6 percent in three years from 11.5 percent at the end of September, the survey shows.
Still, Deutsche Bank’s past efforts to lift capital levels didn’t prove to be sufficient. While a 2.96 billion-euro share sale in 2013 temporarily eased concern over its finances, the bank raised a further 8.5 billion euros from investors the following year to meet tougher regulatory requirements and fund growth in its capital-intensive debt-trading business.
Some analysts are unconvinced.
A capital increase is still “highly probable” this year even after scrapping dividends, Andrew Coombs, an analyst at Citigroup Inc. in London, wrote in a report in November. Six out of 38 analysts surveyed by Bloomberg maintain a sell rating on the stock.