Deutsche Bank To Raise $8.5 Billion In New Capital, Announces Major Restructuring

Tyler Durden's picture

Confirming last week's report of an imminent share sale, on Sunday the biggest German lender announced it would raise €8 billion ($8.5 billion) in new capital through a rights offering sale of 687.5 million new shares, and sell parts of its asset management business in its latest attempt to shore capital following €8 billion in losses in the past two years after a major operational and balance sheet restructuring was launched by CEO John Cryan in 2015, settling misconduct investigations and scaling back capital-intensive debt-trading businesses. The bank also announced that CFO Marcus Schenck, 51, and Christian Sewing, who oversees wealth management and consumer banking, would become co-deputy CEOs. The company will find a new CFO “in due course.”

“A strong capital base is essential if we’re to succeed in charting this strategy,” Cryan wrote in a letter to employees. The share sale will “remove a major source of uncertainty. That should make us significantly more attractive for our clients.”

The timing of the share sale takes advantage of the recent resurgence in Deutsche Bank’s share price, which has almost doubled from multiyear lows near €10 in September. The shares closed Friday at €19.14 in European trading. Last year, corporate clients and hedge funds pulled balances and other business from Deutsche Bank over concerns about its legal costs and weak capital position. Deutsche Bank on Friday night confirmed investor expectations that it needs a capital injection, saying it was doing “preparatory work” for a share sale and considering other strategic moves.

The announcement marks the bank's third time to tap capital markets since early 2013. Since taking over in mid-2015, Mr. Cryan said he wanted to avoid selling shares, which will hurt existing shareholders, however it was concerns over the bank's capitalization, and at time liquidty, that prompted a vicious selloff in August and September of 2016, sending DB's shares to all time lows on concerns the bank's RMBS settlement with the DOJ would drain the company's funding to dangerously low levels.

According to the bank, the share sale would boost its common equity Tier 1 ratio to 14.1% and set a new target of “comfortably above” 13%. The measure stood at 11.9% at the end of 2016, shy of the then-target of 12.5% for the end of 2018. In an amusing twist, during a media call, DB CEO said the Bank hopes to return to attractive dividend ratio from 2018, suggesting that while the bank is raising capital now, it hopes to return it back to shareholders next year.

As part of the restructuring, the firm plans to cut more than €2 billion of costs from the €24.1 billion in adjusted expenses it had last year. The bank will cut another 1 billion euros by 2021. It expects €2 billion of severance and restructuring costs, most of which will come over the next two years. Deutsche Bank also said it would reconfigure its business structure, combining its global markets and its corporate and investment bank, reversing a separation of the investment bank a year and a half ago. The bank said it will keep its Postbank consumer division and still aims to reduce total costs to €22 billion by 2018.

The megabank also said it will sell a minority stake in its asset management unit through an initial public offering in the next two years. That, along with asset disposals at the investment bank, will help raise another 2 billion euros of capital. The bank will propose a dividend in May of 0.19 euros per share.

As the WSJ notes, Cryan has tried to preserve capital by cutting costs, axing employee bonuses and canceling annual shareholder dividend payouts. But those steps haven’t done enough. Cryan’s hopes were overwhelmed by multibillion-dollar legal bills, toughening capital regulations and sagging profits in key businesses ranging from German retail banking to deal-advising and trading. The bank said it expects around €2 billion in restructuring and severance costs in connection with its plans.

On Sunday afternoon, after a meeting of the supervisory board, Deutsche Bank also said as expected that it plans to sell a minority piece of its asset-management business via a public sale of shares. The plan is part of a bid to stabilize that business after it has suffered a long spate of asset declines.

 

Selling a stake would dent the advantage Deutsche Bank gains from the asset-management division’s profits, which are predictable compared with more-volatile investment-banking and trading profits. A stake sale would allow the lender to hold on to a business that Deutsche Bank officials including Mr. Cryan have praised as an important part of the bank. A partial float could help the bank once again expand the division while boosting its capital incrementally, some investors say.

Deutsche Bank also said Sunday it plans to fold its German retail-banking unit, Postbank, back into its ongoing operations. That is a reversal of costly plans announced in 2015 to separate the business in preparation for a spinoff. The bank was unable to find buyers willing to pay an attractive price for the unit in a crowded market where low interest rates have hurt retail-banking profits.

As part of Sunday's announcement, DB said that Jeff Urwin, who led the investment banking division, will retire from the management board after a transition period, according to Bloomberg. Cryan will take direct oversight for the U.S. operations, and the firm is recombining its investment banking and trading units after splitting the two in 2015. Schenck will run the combined unit with Garth Ritchie, who currently leads the trading division.

While the stock has largely priced in the recent share offering, made possible by the recent near double in the stock price, among the other winners of today's announcement are holders of the bank's Contingent Converts, which has soared from a low of 70 during the selling panic in September to just shy of par.

The bank also announced the following new financial targets:

  • 2018 Adjusted Costs of approximately EUR 22 billion and a further reduction to approximately EUR 21 billion by 2021, both include Postbank’s Adjusted Costs
  • Post-tax RoTE of approximately 10% in a normalized operating environment
  • Targeting a competitive dividend payout ratio for fiscal year 2018 and thereafter
  • Fully loaded CET1 ratio to be comfortably above 13%
  • Leverage ratio of 4.5%

In addition to the capital raise, operational restructuring and fine-tuned projections, Deutsche Bank also provided an update on current trading activity. The bank said it "has made a positive start in the first two trading months of 2017." Among the highlights:

  • Global Markets has performed strongly against a weaker comparable period in 2016 with Debt Sales & Trading revenues up over 30% while Equities Sales & Trading was flat year on year.
  • Corporate Finance year to date performance was strong with revenues up over 15% year on year reflecting positive momentum in primary markets that drove significant increases in debt and equity issuance.
  • Global Transaction Banking saw resilience in its client franchise, but single digit lower revenue performance in a macro environment that remains challenging and from the consequences of intentional reductions in client perimeter during 2016.
  • In Private Wealth & Commercial Clients (PW&CC), revenues were flat versus the comparable period in 2016 as the impact of low interest rates was mainly offset by positive developments in investment products supported by asset and deposit inflows.
  • In Postbank, operating performance was flat, but reported revenues were slightly down given the absence of one-off gains in the prior year and weaker hedging results.
  • Deutsche Asset Management had a modest improvement in revenues as well as the reversal of negative asset flows seen in 2016.

DB announced an analyst event will take place tomorrow, March 6, at 14:00 GMT in London to detail these actions and updated targets.

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Soul Glow's picture

Desperate acts are now bullish so, to the moon Alice.

bamawatson's picture

687.5 million shares

hope they dont sell out before i can pick me up a few

Soul Glow's picture

You may have to fight Draghi for some.

gatorengineer's picture

They will be popular in Venezuela if they print the certificate s on two ply.

Larry Dallas's picture

I feel like I heard this story with DB before...

Doom Porn Star's picture

"I feel like I heard this story with DB before... "

 

Have you heard the one about the DB Derivatives stack that purportedly dwarfs the entire GDP of Europe?

2_legs_bahhhhhd's picture

Wtf....only a fucking idiot would invest a dime in this bloated turd....just let these bastards die already. I'm guessing the institutions will buy this crap with other people's money

HAHA(Nelson)

Yog Soggoth's picture

 Boy Howdy Mr. Bama, thanks for the stock tip. I was just fixi'n to invest in platinum, sure am glad I met you online.

tuetenueggel's picture

Shareholders will love the watering of ownership.

They won´t buy the new crappy shares simply to cover eminent losses and giving them a new name.

    S t u p i d i t y   b u y s    l o s s e s.

booboo's picture

and the Germans think that Hitler is the mill stone that hangs on their necks.

Raffie's picture
Major Restructuring sounds more like Major Panicing.
SoDamnMad's picture

Just ask Meg at HP. How's that restructuring working out for you?  Oh, next quarter.  But you said that last time, and the time before that, and the quarter before that.

Giant Meteor's picture

Hmmmmm, the plot thickens ...

Edit;

Someone correct me if I'm wrong here, but that little picture on the front page, announcing the headline. Is that or is it not a Darth Vader statue, in front of the bank? Its probably me. Now where the hell did I leave that second pair of spectacles, oh bother ..

Volaille de Bresse's picture

Now you understand why Germany is "concerned" about Marine Le Pen?
if she's elected DB and Germany are toast

tuetenueggel's picture

DB is almost bankrupt.

They are witing for a bailout by german gvmt. Just so save J O Bs.

 

Sledge-hammer's picture

These a**clowns have a license to print money, and that is not enough for them.  They have to manipulate and distort the system, in collusion with their politicos, destroy their legacy companies, and crash their economies.  And for what?  I always wondered if it was worth selling your soul and integrity for money.  

Yog Soggoth's picture

O, because they suck, and the beginning of both of our our comments spell NO?  How can you keep this prophesy making up with so many evil forces against you! Vee have hunders of pshycic workijnk on your brain all day and night. All ve could do is make you type n.

jamesmmu's picture

There is a reason why US stocks are so popular now, in US, Japan, and China, govt are buying stocks. no capitalims. 

trader1's picture

To Everyone with a Postbank account: 

My condolences.

 

83_vf_1100_c's picture

I am sure Cryan haas a large 'golden parachute' and both hands on the ripcord so all is well.

ejamest's picture

Knock, knock...
Who's there?
Anshu
Knock, knock...
Who's there?
Anshu
Knock, knock...
Who's there?
Anshu gonna thank me for all I did for you guys....

Games Without Frontiers's picture

DB diluting their share structure again...and again...and again. I'm sure this will be the last time so make sure you suckers....er...I mean investors get your pocketbooks ready for a fine piece of this failing banking behemoth.

Al Tinfoil's picture

Didn't I read somewhere about $3 Trillion in derivatives exposure at DoucheBank?  The new management must have covered that with more derivatives.

Anyone wanna buy shares in the Brooklyn Bridge?

Evan Wilson's picture

$3T?

Try $41T and $18T of that are in 'illiquid investments', meaning there may be no market at any price if they had to sell those for cash to meet redemptions.

PoasterToaster's picture

Why doesn't the Federal Reserve just print up another $14 Trillion and ship it to Europe again?

Disgruntled Goat's picture

Hah! Thus their comments on Friday that the Fed is preparing a massive new QE. As I said then, they just want people to keep buying their debt, with the presupposition that the Fed will buy it when it goes bad. Now here they are 2 days later with a major capital raise. These guys are so full of shit. Fuck DB, let them fucking go down in flames.

Take away their fucking Primary Dealer status now!

turnoffthewater's picture

Interestingly Rothchilds are major shareholders, Maybe place the people of Greece as collateral LOL

rosiescenario's picture

That can't be right......shares outstanding are 1.4 billion ....float is 1.3 billion.....so this represents an increase of about 50%....some pissed off shareholders for sure.