Deutsche Bank Said to Weigh EU9 Billion Share Sale

Deutsche Bank AG is considering a stock sale of as much as 9 billion euros ($11.4 billion) to boost its stake in Deutsche Postbank AG and meet stricter capital rules, said three people with knowledge of the talks.

Germany’s largest bank approached securities firms to assess their interest in managing the sale, which may take place as early as next week, said the people, who declined to be identified because the plans are confidential. Whether it carries out the offering will depend on the financing commitment it gets from the banks, one of the people said.

Deutsche Bank has the option to increase its almost 30 percent stake in Bonn-based Postbank, which had the lowest capital ratio among Germany’s largest banks at the end of 2009. The Basel Committee on Banking Supervision is meeting this weekend to hammer out new rules that may force lenders to boost reserves. Chief Executive Officer Josef Ackermann has said the Frankfurt-based bank would only raise capital for acquisitions.

“Deutsche Bank’s offer to Postbank minorities is likely forthcoming, in our view,” Citigroup Inc. analysts including Kinner Lakhani said in a note to investors today. “However, the key question that remains is to what extent the bank may look to also bolster its capital position.”

Deutsche Bank declined as much as 5.7 percent, and was 2.04 euros lower at 47.98 euros by 1:41 p.m. in Frankfurt trading, giving the company a market value of 29.8 billion euros. Postbank jumped 1.07 euros, or 4.1 percent, to 26.88 euros, valuing the bank at 5.9 billion euros.

Capital Needs

Deutsche Bank spokesman Ronald Weichert declined to comment. Postbank Chief Executive Officer Stefan Juette, speaking at a banking conference in Frankfurt yesterday, said he doesn’t know if or when Deutsche Bank may take over the lender.

A capital increase of 9 billion euros would be the largest ever by the German company and the biggest rights offer in Europe this year, data compiled by Bloomberg show. Companies planning to sell stock typically seek to find securities firms to guarantee the offering, agreeing to buy shares that investors don’t order.

In the past four years, Deutsche Bank acquired Berliner Bank AG, Nuremberg-based Norisbank AG, as well as ABN Amro Holding NV’s commercial-banking operations in the Netherlands and private wealth manager Sal. Oppenheim Group. Ackermann, 62, is trying to lower dependence on investment banking, which accounted for 78 percent of pretax profit in the first half.

Basel Rules

Rules under consideration by the Basel committee may force banks to raise reserves. Germany’s 10 biggest lenders, including Deutsche Bank and Commerzbank AG, may need about 105 billion euros in fresh capital because of new regulations, the Association of German Banks estimated on Sept. 6.

Postbank’s Tier 1 capital ratio, a measure of financial strength, fell to 6.6 percent under the most severe scenario of the European Union stress tests conducted in July, compared with the 6 percent minimum required to pass. Deutsche Bank’s ratio, by contrast, stood at 9.7 percent under the toughest test.

The Basel committee reached a compromise on capital ratios for banks that will introduce higher reserve requirements over a five- to 10-year period starting in 2013, Franz-Christoph Zeitler, the vice president of Germany’s Bundesbank, said Sept. 8. The proposal will be the basis for a Sept. 12 meeting of global central bankers and regulators, and an announcement on the new rules may be made as early as that day.

“I’m wondering if this is in relation to the Basel news that will be coming out over the weekend,” said William Fitzpatrick, a financial-industry analyst at Optique Capital Management in Milwaukee, which manages $700 million and owns stock in Deutsche Bank. “I’d imagine there’s a link.”

‘In Line’ With Peers

Policy makers are seeking to increase the capital held by banks to avoid a repeat of the worst financial crisis since the Great Depression, which caused writedowns and credit losses of almost $1.8 trillion worldwide, according to data compiled by Bloomberg. Deutsche Bank dodged the worst of the financial crisis and eschewed a state bailout.

If it conducted a 9 billion-euro capital increase, Deutsche Bank would have an estimated core Tier 1 capital ratio, which excludes hybrid instruments, of 9.2 percent, declining to about 7.5 percent after so-called Basel III rules are introduced, Bank of America Merrill Lynch analyst Derek De Vries wrote in a note to investors today.

“This would leave Deutsche less well capitalized than the Swiss banks, but broadly in line with global peers,” De Vries wrote. Such an offering would dilute the price-earnings multiple by about 20 percent, he said.

Postbank Options

Deutsche Bank agreed to buy a stake in Postbank in September 2008 from Deutsche Post AG and then renegotiated the transaction in January 2009 after the collapse of Lehman Brothers Holdings Inc. roiled financial markets.

In the first step, Deutsche Bank acquired a 22.9 percent stake from Deutsche Post, which it raised to almost 30 percent over time by purchasing additional shares on the market. Deutsche Bank also bought a mandatory exchangeable bond that will be converted into a 27.4 percent Postbank stake in February 2012.

Additionally, Deutsche Bank has an option to buy Deutsche Post’s remaining 12.1 percent stake between three and four years after the deal was completed in February 2009.

Deutsche Bank also has a so-called “open window” until Feb. 25, 2011, to make an offer for the remaining minority 30.6 percent stake at a minimum price of the three-month volume weighted average price of Postbank’s shares, which is currently 24.50 euros, according to Citigroup analysts.

This is “significantly” below the 45 euros that Deutsche Bank would have to offer subsequently based on the price of the mandatory exchangeable bond, Citigroup’s Lakhani wrote.

(Updates with analyst’s comment in fourth paragraph.)
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