- Investors offer $740 million of debt, less than half of target
- Lender began buyback after capital concerns spurred selloff
Deutsche Bank AG bondholders largely shunned an offer to buy back dollar-denominated debt as financial concerns ease.
Investors only offered about $740 million in the tender, compared with a $2 billion target, according to an early-results statement on Monday. The buyback covers eight series of senior unsecured notes, including some issued in January.
The bank offered to repurchase as much as $5.4 billion of bonds in dollars and euros on Feb. 12, as management sought to reassure investors about the lender’s capital strength following a rout in its stock and riskiest debt. The euro portion of the tender was also undersubscribed, which the Frankfurt-based company said was due to improved confidence.
“On the senior front, people aren’t too worried,” said Wee Mien Cheung, who oversees about 15 billion euros ($16 billion) of debt at Delta Lloyd Asset Management in Amsterdam. “Liquidity is not an issue for the bank, though capital is.”
Deutsche Bank expects to book a 15 million-euro profit in its first-quarter results because of the buyback, it said. That’s in addition to a 40 million-euro gain from repurchasing euro-denominated notes. The two tenders have so far resulted in bonds with a face value of 1.94 billion euros being bought back, the bank said.
Notes in the dollar-bond tender are generally little changed since the tender was announced, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The largest issue in the buyback, $2.25 billion of notes due in February 2019, traded at 98 cent on the dollar on Monday.
Looming regulatory changes are weighing on German banks’ senior unsecured bonds, as they will increase the chances of notes being bailed in if a bank runs into difficulties. The new rules, which come into force next year, are making some investors “more nervous,” Cheung said.
Deutsche Bank’s shares have risen 16 percent since the day before the buyback was announced. They’re still down 30 percent this year, compared with a 22 percent drop for the Euro Stoxx Banks Index.
The lender began the buyback days after CreditSights Inc. analysts said a capital squeeze could prevent coupon payments on the lender’s riskiest bonds next year. The bank rebuffed that assessment, with Co-Chief Executive Officer John Cryan saying it was “rock solid.”
Cryan is overhauling Deutsche Bank as tighter regulations, litigation costs and depressed interest rates weigh on earnings. Plans include eliminating a net 9,000 jobs by 2018 to lower costs.
Holders of dollar bonds sold in January had pushed for better terms in the buyback, people familiar with the matter said earlier this month. The final deadline is March 11. Investors tendering now will receiving a lower price than those who offered up bonds in the early-acceptance stage.
The repurchase offer didn’t include any of the bank’s riskiest bonds, so-called additional Tier 1 notes, which have plunged this year.