Deutsche Bank Bondholders Shun Buyback Offer as Concerns Ebb

  • Lender to repurchase less than half of euro-debt tender target
  • Buyback followed stock, debt plunge caused by capital concerns

Deutsche Bank AG bondholders largely snubbed an improved offer from the lender to buy back euro-denominated debt as concerns about capital strength eased.

The bank is repurchasing 1.27 billion euros ($1.4 billion) of senior bonds in the single currency, compared with its 3 billion-euro target, according to a statement on Tuesday. Tender prices for floating-rate notes in the buyback were increased by as much as 2.6 cents on the euro, it said.

The lender announced plans to repurchase as much as $5.4 billion of bonds in total on Feb. 12 after a tumble in its shares and debt caused by concerns about its finances. Only about 20 percent of the bonds covered in the euro portion of the tender were offered up by bondholders, which the Frankfurt-based bank said showed improved confidence.

“A buyback of senior bonds is not a game-changer,” said Jon Mawby, a London-based bond fund manager at Man Group Plc’s GLG unit, which oversees $31 billion of assets. “It’s obviously been done to try and bolster confidence and show Deutsche has enough liquidity, but it doesn’t solve the core issues at the bank.”

The lender expects to book a 40 million-euro profit in its first-quarter results from the single-currency part of the buyback, it said. The offer covered two floating-rate notes and three fixed-rate bonds.

Dollar Tender

A tender to repurchase $2 billion of dollar bonds, including some sold in January, will remain open until March 11. Investors who bought notes in January were pushing for better terms, saying the German lender failed to disclose its true financial position before the sale, people with knowledge of the matter said earlier this month.

Euro notes in the buyback have gained about two cents from lows reached in the days before the offer was announced, according to data compiled by Bloomberg. They were little changed on Tuesday. The 2 billion euros of 1.25 percent bonds due in September 2021 were at 98 cents, up from a record low of 96 cents on Feb. 9.

“The relatively low investor participation reflects the improving market sentiment and an investor preference to retain exposure to Deutsche Bank,” the lender said in the statement.

The buyback didn’t include any of the bank’s riskiest bonds, so-called additional Tier 1 notes, which have plunged this year.

Key Risks

The debt repurchases do little to address key risks at the bank including hard-to-predict litigation costs and its ability to maintain capital buffers while restructuring operations, said Anne-Charlotte Com, a credit analyst at Kepler Cheuvreux SA in Paris.

“They’re not dealing with the main issues,” she said. “The reason for doing this is communicating strength and restoring market confidence.”

Deutsche Bank announced 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. The bank said on Monday that it will cut 75 jobs in its trading business.

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