- Deal may be smaller than $5.5 billion securitization last year
- Firm faces pressure to bolster capital while resolving probe
Deutsche Bank AG, which is trying to bolster its capital, is working to securitize billions of dollars of corporate loans to offload risk, according to a person with knowledge of the matter.
The bank is structuring the transaction as a synthetic collateralized loan obligation, which means the firm would keep servicing loans while transferring risk to investors, said the person, who asked for anonymity because the deal is pending. Germany’s biggest bank has been doing similar deals for years to manage risks from corporate lending, the person said.
An official at the bank declined to comment.
“This is something Deutsche has been doing for years now,” said Hans Ulrich Jost, a fund manager at GAM Holding AG, which owns the lender’s shares. “It’s a very valid strategy and it helps to improve capital ratios, the impact is not big though.”
Deutsche Bank is not under more pressure than other European investment banks to bolster capital, he said. “Cryan is a very rational person and he wouldn’t do such things if it’s not worth it," he said.
Deutsche Bank was already ranked among the worst-capitalized lenders in European stress tests before U.S. authorities demanded $14 billion during initial talks to settle a probe into how it handled mortgage securities at the heart of the 2008 financial crisis. Chief Executive Officer John Cryan has suspended the dividend to preserve capital and has repeatedly ruled out tapping investors for more. The Frankfurt-based bank has said it expects to pay “materially” less to resolve the investigation.
Deutsche Bank completed a similar securitization involving $5.5 billion of loans last year, the person said. The Street reported earlier Monday that the new deal would be larger than that. The person with knowledge of the matter said it would be smaller.