Finance

Lionel Laurent is a Bloomberg Gadfly columnist covering finance and markets. He previously worked at Reuters and Forbes.

Top trolling. The idea that Turkey should buy Deutsche Bank, cheekily floated by an advisor to President Recep Tayyip Erdogan on Twitter, is being greeted with derision. But don't dismiss the idea of an investment from the Middle East or Asia out of hand.

If what Deutsche Bank needs is a show of strength to the market, a move by Qatar -- whose royal family is the lender's largest active shareholder -- to increase its stake, or a new investment from a sovereign wealth fund from elsewhere could provide exactly that.

Still Sovereign, Less Wealthy
Falling oil prices are squeezing commodity-rich countries
Source: Bloomberg

It's true the world has moved on from the great financial crisis, when sovereign wealth funds from Abu Dhabi to China lined up to invest in global banks including Citigroup, Morgan Stanley and UBS. The combination of burned fingers and a flagging oil price -- which has seen even Saudi Arabia slash ministers' salaries and cut subsidies -- makes it hard to imagine any government will want to throw good money after bad, and then sit back passively.

Yet Deutsche Bank's Middle Eastern investors have previously proved willing to double down on their shareholding in the face of painful losses while gently turning the screws to keep management on track.

After February's dramatic plunges in Deutsche Bank's shares, Qatari royals didn't sit still: They upped the stake they hold through two investment vehicles to almost 10 percent, and publicly proposed a new board member.

One of the Qatar funds, controlled by Sheikh Hamad bin Jassim bin Jabr Al Thani, gave its public backing to Chairman Paul Achleitner -- who made clear in a May speech to shareholders that he was tackling Deutsche Bank's stubbornly-high costs "head-on."

Since then, the outlook for Deutsche Bank has worsened, with U.S. authorities poised to impose a fine as much as $14 billion.

Qatari Pain
Deutsche Bank's shares have slumped since announcing stake sale to Qatari investors in 2014
Source: Bloomberg

The bank's Qatari backers have an interest in protecting their investment. Throwing good money after bad isn't a good look: the stock has fallen by more than 50 percent since the start of the year. But doing nothing or selling at a loss may prove a worse one.

If the Qataris did increase their stake, it would give Deutsche Bank breathing room to avoid quick-fix solutions -- such as selling the asset management business or "zeroing" bonuses for its top 3,000 staff -- that would, in the long term, only damage revenue. It would also give Qatar greater leverage to push the lender's managers for longer-term changes to revive profitability and bolster capital. It wouldn't be a passive holding.

What Deutsche Can Afford
Deutsche Bank's reserves could cover a fine of up to $9.6 billion before imperilling capital or coupons
Source: KBW estimates

A heavy fine from the U.S. would at least bring certainty to how much the bank will have to pay for litigation bills and what additional capital is needed. For now, CEO John Cryan has insisted there's no need to raise capital. But a big penalty might be the clarifying moment that allows him to approach outside investors about the possibility.

And remember also that the strategic rationale for energy-rich players in the Middle East and beyond hasn't changed. These economies need to diversify away from commodities and news of an OPEC deal won't change that. Financial services at home and abroad are an obvious target -- part of the reason why two Abu Dhabi banks are merging to create a regional powerhouse.

If Qatar doesn't step up to the plate, other investors from elsewhere could be tempted. Angela Merkel isn't the only world leader with a stake in what happens to Deutsche Bank.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Lionel Laurent in London at llaurent2@bloomberg.net

To contact the editor responsible for this story:
Edward Evans at eevans3@bloomberg.net