Deutsche Bank Sells Another $1.5 Billion In Debt At Junk Bond Terms

Tyler Durden's picture

We were surprised when, just after the close on Friday, Deutsche Bank announced it would issue $3 billion in five year paper carrying a nosebleeding coupon of 4.25%, and a spread of 300 bps over Treasuries. By issuing debt at such a high yield - indicatively 300 basis points is close to the average for highly-rated junk debt in dollars and more than twice the 143 basis points Deutsche Bank paid for similar notes in August 2015 - DB management confirmed it had liquidity concerns (the issue did nothing to help the bank's ailing capitalization).

As we said on Friday, "some have wondered why the need to sell new paper at such a wide concession: after all as we reported before, DB has no current liquidity constraints courtesy of substantial ECB generosity, which backstop DB's existing liquidity reserves of just over €200 billion" leading to the question: "does DB know something investors don't?."

While the question remains unanswered, a similar question emerged last night when taking advantage of the still open issuance window, Deutsche Bank raised another US$1.5 billion in bonds, tapping last Friday's $3 billion 5-year issue. The self-led tap of its 4.25% October 2021s priced at similar terms, at 100.263 and a spread of 290bp over Treasuries for a yield of 4.191%, and a coupon of 4.25%. According to Bloomberg, the German lender targeted mostly the same investors who bought last week’s $3 billion private deal. The deal was priced at a premium of 290 basis points, once again suggesting that at least from the perspective of investors, DB is effectively a junk rated credit.

The two-day issuance was Deutsche Bank’s first since the U.S. Justice Department demanded $14 billion to settle RMBS misselling claims, a leaked report of which in mid-September sent the stock tumbling.

“The private debt sale shows they can still access the market for sizable term funding,” said Ben Sy of JPM in Hong KOng. Even so, “it has to pay a significant premium and that may shake confidence among investors,” he said. Which is good because as we showed yesterday, DB's funding costs in short-term markets continue to rise even as most other European banks are paying less.

 

As Bloomberg notes, "the bonds will become more vulnerable to losses from Jan. 1, when a German law takes effect that subordinates existing notes to deposits, derivatives and structured notes. Senior bonds could be bailed in if post-tax losses exceed 20 billion euros or if some lower-ranking bonds don’t provide a cushion because they’re not governed by EU law, Hank Calenti, an analyst at Wells Fargo & Co. in London, wrote in a note to clients."

“Short term, it’s a good thing for Deutsche that they’re raising money even though they have to pay a higher spread than they want to,” said Jonathan Rochford, a Sydney-based portfolio manager at Narrow Road Capital, which manages A$35 million ($26.5 million). “It gives people confidence that they’re getting funding. But the long-term issues haven’t changed. They’re still undercapitalized.”

Precisely, and in the meantime, the bank's leverage keeps growing especially if the use of funds from the bond issuance will promptly exit through the front door to pay for either more litigation charges or other non-business purposes, while the underlying business model continues to deteriorate.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Jtrillian's picture

If you are willing to buy those bonds, I have a bridge for sale...

Cognitive Dissonance's picture

This is the equivalent to maxing out your credit cards, then taking out a title loan on your ten year old Jeep with the ripped seats and the pee stain on the passenger side carpet.

<Title loan company owner - "Here's $200. It's a gift. Just get that thing out of my parking lot.">

VinceFostersGhost's picture

 

 

It's almost like buying gold man....

Haus-Targaryen's picture

Anxiously waiting for Moody's to reaffirm DB's rating. 

SomethingSomethingDarkSide's picture

Scenes from "The Big Short" are flooding back into mind..

"We just sign them off, or else they'll go right down the street and get the rating from someone else!"

HungryPorkChop's picture

The real question is "who" bought those bonds, Belgium?  Maybe DB bought their own junk bones with a 0% interest loan from the EU.

Clockwork Orange's picture

Where is Corzine?  Shouldn't he be gang-raping somebody's accounts to lever up a position in DB?

Long live the mockery of Amerika.

Cognitive Dissonance's picture

Corzine is in my neighbors pasture flipping cow-pies and mumbling something about leverage and a killing when he corners the market.

Government needs you to pay taxes's picture

This debt financing merely pays for the banksters bonuses @ year end.  Could these funds buy that final pair of Gucci loafers which might actually serve the public interest via creating mellifluous chime noises once their (prior) owners reach their final positions in society?  I recommend a matching program.  For every banker that buys a pair of Gucci loafers, I suggest a populist buy a strong rope.  You know, it's for the kids.  They LOVE those windchimes.

Nunya Bidness Gogl's picture

Cow pies actuaally have value. They return nutrients to the soil and build it up.

Arrowflinger's picture

Probably in Bible Belt Georgia, where the table is set with limitless fraud opportunities. There is only one precursor - first you must pimp out the Baptists like Fox News contributor Ralph Reed did using Jack Abramoff's money.

Before embarking on ANY southern baked scam, first you must conduct a prayer breakfast.

LadiesLoveCoolJames's picture

But in this scenario, you are pretty sure that your rich uncle will give you $500,000 for that Jeep if bankruptcy becomes imminent.

GunnerySgtHartman's picture

Talk about a POS company, DooshBank is it.

oncemore's picture

If your bridge is tangible, then it is by miles better, then the blanco paper of DB.

Squid Viscous's picture

very quiet morning, almost like it's a holiday or something...

VinceFostersGhost's picture

 

 

It's quiet.......too quiet.

jewish_master's picture

well it is yom kippur so most of wall street is off i guess. just goes to show u how much control we have over there.

Squid Viscous's picture

yeah i know, one day to "atone" for 364 days of thieving, what a racket!

no down votes they're not allowed to use electricity on these solemn days

many moons ago some twilrly sideburned hasid asked me to push an elevator button, guess it was sabbat, i said how about i push your eyeball into your skull,

he scurried out like a cockroach,

Catullus's picture

Crisis averted. Liquidity is the only thing that matters.  Lived to fight another day.

Arrowflinger's picture

Soon liquidity will be back to moonshine.

Think about it.

back to basics's picture

DB's plan is to try to survive until after the German election with a helping hand from tbe Italian stallion "whatever it takes" at the ECB. Then they will be bailed out.

This is also the German government's playbook. Anything else that happens between now and the German election is just noise. 

localstorm's picture

Selling bonds cannot improve capital position of DB. This can only add to their liquidity, which they said they have plenty of. Well, maybe not, if they are selling bonds.

Cognitive Dissonance's picture

"Git while the gitting is good." - Bank CEO mantra

CarpetShag's picture

If you are a pension fund manager, how many f***s do you give? It's other people's money.

Couldn't find the rating of this dogshit anywhere.

 

Infield_Fly's picture
Infield_Fly (not verified) Oct 12, 2016 7:07 AM
Deutsche Bank Sells Another $1.5 Billion In Debt At Junk Bond Terms

 

Sure, this will work!!!!  LMFAO!!!!

 

Time to ramp up the "launder drug lord money" processes.

the not so mighty maximiza's picture

I think they are having problems

Vageling's picture

I know they have problems. When you do a Juncker ( http://www.irishtimes.com/polopoly_fs/1.2702664.1467132565!/image/image.jpg_gen/derivatives/box_620_330/image.jpg ) like, No, No, No, don't look there! Pay no attention to that! Everything is awesome... You are full of shit. Just like Juncker.

A few European countries have elections coming up. Germany is one of those countries. Can't have DB blow up and have the europhiles at a disadvantage now can we?

agstacks's picture

These bonds will fund the golden parachautes, looks like.. 

29.5 hours's picture

Best rationale I've seen yet for this sale. It's a real possibility.

 

 

 

Nunya Bidness Gogl's picture

And it will only continue, until many more of the sheeple achieve basic financial literacy.

I'm not holding my breath.

JailBanksters's picture

A Insolvent Bank can sell something they don't have so in 5 years time sell another one to pay for this one.

It sounds like the Doosh Bank is back to planet ponzi again.

 

Arrowflinger's picture

While America's politicians are all on Planet Poontang.

buzzsaw99's picture

a mere pittance. they should look in the seat cushions in the lobby they would probably find more than that.

back to basics's picture

The lobby, no, but their corporate board room, no doubt. 

khaproperty's picture

Leveraged loans sold by DB at better than market conditions shows the need - out of political and liquidity conditions and business expansion.

SillySalesmanQuestion's picture

I always pay triple for what everyone else is paying.
Is someone finally pricing risk in? God forbid that we actually have a smidgeon of price discovery.

Paul Morphy's picture

And when the bond bubble bursts what's gonna happen?

MathWins's picture

Throwing good money after bad....that rarely turns out good.

Bopper09's picture

Why not jack up the iou rate, when you don't plan on paying it back.

Last of the Middle Class's picture

5 yr @ 4.25. LMFAO. Umm, i'll pass, thanks anyway. In 5 years they'll still be printing more bonds to cover.

Cryoprase the Troll's picture

Ach.

ING, KBC, BNP, Aegon and other European banks and insurance companies were issuing perpetual bonds at 6-8% during the crisis in 2008, whilst T bills were already below 2%. And these bonds were trading on Euronext at 60-80% of face value => 10% yield. I know: I even bought a few [betting on a bail out] :)

So there's still plenty of room to run.

Publicus's picture

Bank must pay the depositor first at 4% yield.

zippy_uk's picture

"Worthless paper,

 Worthless paper,

 ROLL UP, ROLL UP,

 Get your worthless paper,

 Only $1.5Bln - all for a lost cause..."

Atomizer's picture

As stated in above tread, you will find out shortly. Be patient. It's a very currupt government whose is going to get exposed. 

Butthole Surfers - Cherub - YouTube

JohnDoe's picture

That sizzling sound you are hearing is the lit fuse of the bomb that will burst the dam.

UnschooledAustrianEconomist's picture

Or Yellen's, Draghi's and Koruda's frantic fingers on the Ctrl+P keys.