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Deutsche Bank (DB) to Raise $8.5B Capital, Sets New Targets
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Along with ongoing restructuring efforts, the German banking giant – Deutsche Bank AG (DB - Free Report) – has planned the issuance of new shares worth €8 billion ($8.5 billion). The capital increase, expected to launch on Mar 21, and run through Apr 6, will comprise the issuance of 687.5 million new shares, with subscription rights for the bank’s existing shareholders.
To resist another financial meltdown, banks in Europe are under stringent regulatory pressure to maintain a sturdy capital position. Therefore, amid macroeconomic headwinds and a challenging operating environment, the capital raising initiative will enable Deutsche Bank meet regulatory requirements, enhance its competitiveness, as well as aid in meeting investment targets across core businesses.
Further, such moves by the bank will negate persistent criticism over the bank’s ability to absorb expected losses.
The capital raising is underwritten by a group of banks, including Credit Suisse Group AG , Barclays, The Goldman Sachs Group, Inc. (GS - Free Report) , BNP Paribas, Commerzbank, HSBC, Morgan Stanley (MS - Free Report) , and UniCredit.
After Effects
The capital raising is likely to increase Deutsche Bank's Common Equity Tier 1 (CET1) ratio to 14.1% and leverage ratio to 4.1% as of Dec 31, 2016, fully loaded. Notably, further capital increase worth €2 billion is expected, through asset disposals and flotation of a minority stake of Deutsche Asset Management.
Following the capital raise, Deutsche Bank will be focused on its series of additional actions and new financial targets, replacing those announced in Oct 2015. New measures include the integration of Postbank into the bank’s private and commercial banking, and wealth management businesses instead of disposal of the unit, restructuring of the existing divisions with focus on three business divisions (Private & Commercial Bank, Deutsche Asset Management and Corporate & Investment Bank), and selling minority stake in Deutsche Asset Management (Deutsche AM) through an initial public offering (IPO) over the next two years.
Deutsche Bank aims to exceed CET1 ratio above 13% and a leverage ratio of 4.5%. In addition, adjusted costs of about EUR 22 billion are anticipated in 2018 and a further drop to about EUR 21 billion by 2021, both including Postbank’s adjusted costs as compared with EUR 24.1 billion in 2016. Such actions are likely to result in restructuring and severance costs of about EUR 2 billion, mainly to be incurred through 2017 to 2019.
Additionally, Post-tax RoTE of about 10% in a normalized operating environment, and a competitive dividend payout ratio for fiscal 2018 and thereafter is targeted.
John Cryan, Chief Executive Officer, stated, “Our decisions are a significant step forward on the path to creating a simpler, stronger and growing bank. The capital increase will reinforce our financial strength substantially. The new three-pillar structure of our operating business should position us for significant growth, both in revenues and earnings.”
Conclusion
Deutsche Bank’s initiative of strengthening its capital position by issuing new shares will result in dilution of the existing ownership. Moreover, though increase in capital will make it less risky, the profit margin will be reduced for the bank as equity investment will rise. Therefore, such initiatives taken by the bank might bring down shareholders’ confidence.
However, negating such issues, on the brighter side, the solid capital position will better enable the bank to meet its investment targets and regulatory requirements. Furthermore, if the planned investment reaps benefits, the excess capital in the future would be returned to shareholders, thereby boosting their confidence.
Deutsche Bank’s shares gained around 33.1% over the last six months, as against 13.5% gain in the Zacks categorized Foreign Banks industry.
At present, Deutsche Bank boasts a Zacks Rank #1 (Strong Buy).
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2017? Who wouldn't? Last year's market-beating Top 10 portfolio produced 5 double-digit winners. For example, oil and natural gas giant Pioneer Natural Resources and First Republic Bank racked up stellar gains of +44.9% and +44.3% respectively. Now a brand-new list for 2017 has been hand-picked from 4,400 companies covered by the Zacks Rank. See the 2017 Top 10 right now>>
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Deutsche Bank (DB) to Raise $8.5B Capital, Sets New Targets
Along with ongoing restructuring efforts, the German banking giant – Deutsche Bank AG (DB - Free Report) – has planned the issuance of new shares worth €8 billion ($8.5 billion). The capital increase, expected to launch on Mar 21, and run through Apr 6, will comprise the issuance of 687.5 million new shares, with subscription rights for the bank’s existing shareholders.
To resist another financial meltdown, banks in Europe are under stringent regulatory pressure to maintain a sturdy capital position. Therefore, amid macroeconomic headwinds and a challenging operating environment, the capital raising initiative will enable Deutsche Bank meet regulatory requirements, enhance its competitiveness, as well as aid in meeting investment targets across core businesses.
Further, such moves by the bank will negate persistent criticism over the bank’s ability to absorb expected losses.
The capital raising is underwritten by a group of banks, including Credit Suisse Group AG , Barclays, The Goldman Sachs Group, Inc. (GS - Free Report) , BNP Paribas, Commerzbank, HSBC, Morgan Stanley (MS - Free Report) , and UniCredit.
After Effects
The capital raising is likely to increase Deutsche Bank's Common Equity Tier 1 (CET1) ratio to 14.1% and leverage ratio to 4.1% as of Dec 31, 2016, fully loaded. Notably, further capital increase worth €2 billion is expected, through asset disposals and flotation of a minority stake of Deutsche Asset Management.
Following the capital raise, Deutsche Bank will be focused on its series of additional actions and new financial targets, replacing those announced in Oct 2015. New measures include the integration of Postbank into the bank’s private and commercial banking, and wealth management businesses instead of disposal of the unit, restructuring of the existing divisions with focus on three business divisions (Private & Commercial Bank, Deutsche Asset Management and Corporate & Investment Bank), and selling minority stake in Deutsche Asset Management (Deutsche AM) through an initial public offering (IPO) over the next two years.
Deutsche Bank aims to exceed CET1 ratio above 13% and a leverage ratio of 4.5%. In addition, adjusted costs of about EUR 22 billion are anticipated in 2018 and a further drop to about EUR 21 billion by 2021, both including Postbank’s adjusted costs as compared with EUR 24.1 billion in 2016. Such actions are likely to result in restructuring and severance costs of about EUR 2 billion, mainly to be incurred through 2017 to 2019.
Additionally, Post-tax RoTE of about 10% in a normalized operating environment, and a competitive dividend payout ratio for fiscal 2018 and thereafter is targeted.
John Cryan, Chief Executive Officer, stated, “Our decisions are a significant step forward on the path to creating a simpler, stronger and growing bank. The capital increase will reinforce our financial strength substantially. The new three-pillar structure of our operating business should position us for significant growth, both in revenues and earnings.”
Conclusion
Deutsche Bank’s initiative of strengthening its capital position by issuing new shares will result in dilution of the existing ownership. Moreover, though increase in capital will make it less risky, the profit margin will be reduced for the bank as equity investment will rise. Therefore, such initiatives taken by the bank might bring down shareholders’ confidence.
However, negating such issues, on the brighter side, the solid capital position will better enable the bank to meet its investment targets and regulatory requirements. Furthermore, if the planned investment reaps benefits, the excess capital in the future would be returned to shareholders, thereby boosting their confidence.
Deutsche Bank’s shares gained around 33.1% over the last six months, as against 13.5% gain in the Zacks categorized Foreign Banks industry.
At present, Deutsche Bank boasts a Zacks Rank #1 (Strong Buy).
You can see the complete list of today’s Zacks #1 Rank stocks here.
Zacks' Top 10 Stocks for 2017
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2017? Who wouldn't? Last year's market-beating Top 10 portfolio produced 5 double-digit winners. For example, oil and natural gas giant Pioneer Natural Resources and First Republic Bank racked up stellar gains of +44.9% and +44.3% respectively. Now a brand-new list for 2017 has been hand-picked from 4,400 companies covered by the Zacks Rank. See the 2017 Top 10 right now>>