Frankfurt/London/Zurich: Deutsche Bank AG chief executive officer John Cryan, who has spent almost two years navigating through legal probes, is now tackling concerns about capital levels with plans to raise more than €8 billion ($8.5 billion).
The bank confirmed a Bloomberg News story from earlier Friday that said the lender plans an equity offering and the partial sale of its asset-management unit. The bank may seek to reintegrate its Postbank consumer business after failing to find a buyer, in what had a been a key pillar of Cryan’s strategy. The supervisory board has scheduled a meeting for Sunday to discuss the plans, said a person familiar with the matter.
While Cryan, 56, has focused on improving internal controls and scaling back capital-intensive debt-trading businesses since taking over in 2015, some investors and clients aren’t convinced. Frankfurt-based Deutsche Bank lost market share in the fourth quarter as mounting legal costs fueled concern about its financial strength.
“It’s a step in the right direction, but still way short of what they need," said David Hendler, head of Viola Risk Advisors, an independent research firm. “They need to have better profitability in investment banking, lending and everything else they do."
Deutsche Bank also is studying management changes, including a new role for chief financial officer Marcus Schenck, people familiar with the matter said Friday. Schenck and Christian Sewing, who oversees wealth management and consumer banking, may be named co-deputy CEOs, positioning them as potential successors to Cryan, according to one person briefed on the discussions.
The firm is weighing recombining its investment-banking and trading divisions, with Schenck overseeing the business alongside Garth Ritchie, one of the people said. Jeffrey Urwin, who runs the investment-banking unit, plans to leave, according to the person.
Deutsche Bank declined to comment beyond the statement on Friday.
Implementation of a share sale and other measures are subject to market conditions and approval by the bank’s management and supervisory boards, the firm said in a statement late Friday.
Doubts about Deutsche Bank’s financial strength intensified after the US Justice Department in September demanded $14 billion to end an inquiry into mortgage securities that fueled the 2008 financial crisis. Investors were relieved when the final settlement in December came at about half that amount.
That’s helped almost double the lender’s share price since 26 September and made a potential stock sale more attractive. Prior to the plan announced Friday, Cryan had been focused on selling Postbank to raise capital. But the bank has been unable to find a buyer for the unit, which employs 18,000 people.
“A capital increase is probably the best option given the alternatives. Everything else would cut into real business," said Michael Huenseler, an investor at Assenagon Asset Management, which has stock in Deutsche Bank. “But it will be an enormous dilution for shareholders at the current price-book ratio."
Deutsche Bank shares fell 4.3% to close at $19.35 in New York. The stock trades at about half the bank’s tangible book value, below European peers including UBS Group AG, which trades at 1.3 times book, and France’s BNP Paribas SA at 0.9 times book.
Deutsche Bank could sell as much as 30% of the asset-management unit in an initial public offering, the people said. The division had €774 billion of client assets at the end of 2016.
An IPO of the fund-management business may be attractive to investors who have watched the success of Amundi SA, France’s largest asset manager, since controlling shareholder Credit Agricole SA listed it on the Paris market. The stock is up more than 20% since its IPO in November 2015, and the company posted its highest quarterly inflows in two years in the fourth quarter.
Deutsche Bank’s asset-management unit had seen six consecutive quarters of net money outflows by the end of last year. Division head Nicolas Moreau, who joined the business in October, has pledged to reverse the trend.
Deutsche Bank’s management board earlier planned to wait for the completion of new banking standards that could force the firm to hold yet more capital, including for Postbank, before finalizing fresh measures. After failing to deliver a deal in early January, the Basel Committee of global banking supervisors once again left the table this week without an agreement, fueling uncertainty over the timing.
The bank’s common equity Tier 1 ratio—which stood at 11.9% at the end of 2016—is still 60 basis points shy of the target for the end of 2018. With revenue under pressure from low interest rates, Deutsche Bank also is trying to build capital organically by improving profitability. The lender has withdrawn from several countries and recently announced that it will drastically cut bonuses for about a quarter of its staff.
Schenck has said new rules could add €100 billion to its risk-weighted assets, which amounted to €358 billion at the end of 2016. The increase would probably come over seven to 10 years, he said.
Deutsche Bank acquired Postbank seven years ago under then-CEO Josef Ackermann, hoping the move would help reduce its reliance on investment banking. The company wasn’t able to realize anticipated cost savings by acquiring the business. And limits on leverage made its mortgage business less attractive, the bank said. Labour union Verdi said in February that it opposes reintegrating Postbank into Deutsche Bank because it would put jobs at risk. Bloomberg
Ruth David in London and Jan-Henrik Foerster in Zurich contributed to this story.