Friday 9 December 2016

Deutsche Bank has limited options for raising funds

Edward Taylor

Published 18/10/2016 | 02:30

A statue is pictured next to the logo of Germany's Deutsche Bank in Frankfurt. Photo: Reuters
A statue is pictured next to the logo of Germany's Deutsche Bank in Frankfurt. Photo: Reuters

Deutsche Bank must move quickly to boost capital and deliver healthy profits if it is to restore investor confidence, but its room for manoeuvre appears limited, bankers, analysts and investors say.

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When John Cryan took over as chief executive last year, he announced steps to cut staff and overheads and to sell off non-core businesses. But a $14bn fine sought by the US Department of Justice (DOJ) for the bank's mis-selling of mortgage securities has exposed a potential capital shortfall of between €5bn and €10bn, while progress implementing the strategy has been slow.

The bank has no solvency or liquidity problems and says it currently has no plans for a capital increase.

It is meeting all its regulatory requirements.

But while the DOJ settlement might finally be significantly lower than $14bn, the lender faces further fines for suspected money laundering that could hike litigation charges to between $8bn to $9.5bn. Some analysts say litigation reserves total just €5.5bn.

The bank may have no choice but to raise money, despite limited options in the short term.

The easiest course is a capital increase and accelerated cost cutting.

Shareholders have already authorised Deutsche Bank's management to issue new shares of up to 50pc of its existing capital.

At the bank's current share price it would be able to raise up to €5bn.

But analysts and investors say other options, such as asset sales, bonus forfeitures or even merging with a rival should be considered. "Each of the major initiatives is unattractive, in our view. It is simply a question of Deutsche choosing the least bad," Stuart Graham, an analyst at Autonomous Research, said in a note.

In September Mr Cryan told employees that the bank had no plans to sell the business.(Reuters)

Irish Independent

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