Deutsche Bank to Take €800 Million Hit on Abbey Life Sale

  • Deutsche Bank will book 800 million-euro loss on deal
  • Phoenix to raise 735 million pounds in stock to help fund deal

Spence: Deutsche Bank May Test German Bailout Stance

Phoenix Group Holdings said it’s buying Deutsche Bank AG’s U.K. insurance unit Abbey Life Assurance Co. for 935 million pounds ($1.2 billion).

The U.K. consolidator of closed-life insurance businesses said it will fund the deal with a share sale along with a banking facility, according to a statement Wednesday. The German lender said it will book a pretax loss of about 800 million euros ($895 million) from the sale.

Deutsche Bank CEO John Cryan, under pressure to shore up earnings and bolster the balance sheet, is selling the unit after new European regulations in January forced firms with insurance assets to hold more capital. While the lender is losing money on the Abbey Life sale, the bank said the deal is expected to lift its Common Equity Tier 1 capital ratio by about 10 basis points from the June 30 level.

“We continue to build a simpler and better Deutsche Bank,” Cryan said in a statement. “This transaction will also strengthen Deutsche Bank’s capital position.”

Mounting legal bills have led analysts to question the lender’s ability to avoid selling assets or take other steps to raise capital. While a public offering of its German Postbank consumer division has been put on hold, the debate over Deutsche Bank’s finances intensified after it was disclosed that the U.S. Justice Department is seeking $14 billion to resolve a probe of the lender’s pre-crisis mortgage securities business.

Phoenix is planning to raise about 735 million pounds in stock to help fund the purchase, along with a 250 million-pound banking facility, it said. The deal will add 10 billion pounds to assets under management, about 735,000 policyholders and will increase dividends by 5 percent in 2017 to 197 million pounds, the company said.

“This attractively-priced deal meets precisely Phoenix’s areas of strategic focus and stated acquisition criteria, whilst significantly increasing our cash generation and supporting a further increase in our proposed dividend,” said Phoenix Chief Executive Officer Clive Bannister.

Bannister, who has focused on cutting costs and debt at the company since he joined in 2011, bought Axa SA’s U.K. pension and protection business earlier this year for 375 million pounds, partly funded through a share placement. Swiss Re AG and Britain’s Legal & General Group Plc were among several firms considering bids for Abbey Life, people familiar with the matter said in April.

Deutsche Bank climbed 2.2 percent to 10.78 euros by 11:55 a.m. in Frankfurt after hitting a record low earlier in the week. Phoenix shares were up 3 percent to 863.5 pence in London.

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