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Deutsche Bank Explores Capital-Raising Options with Banks
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In order to deal with the huge potential legal fine, Deutsche Bank AG (DB - Free Report) is in informal talks with various other firms to explore options, including raising capital.
Some of these options discussed by the representatives at Deutsche Bank and various senior advisers at top Wall Street firms include a share sale and disposal of assets. However, since the plans are not yet public, a spokeswoman for Deutsche Bank declined to comment.
The U.S. Department of Justice has proposed to fine the bank with $14 billion for its issuance and underwriting of residential mortgage-backed securities and related securitization activities during the period between 2005 and 2007.
Additionally, the Bank may also have to face a fine in a money-laundering probe tied to its Russia operations, which might cost it as much as €2 billion.
Notably, as of Jun 30, 2016, the bank only had €5.5 billion ($6.2 billion) in its litigation reserves and hence its plans to raise capital.
Understanding the situation, some of Germany’s blue-chip companies are ready to help the bank in underwriting a stock sale that would help it raise about €5 billion ($5.6 billion). This is probably the maximum amount that Deutsche Bank can raise by selling shares without prior approval by shareholders.
According to a Bloomberg report, JPMorgan Chase & Co. (JPM - Free Report) , The Goldman Sachs Group Inc. (GS - Free Report) , Morgan Stanley (MS - Free Report) and Bank of America Corporation are the top advisers on global share issuance this year. So, any of these companies may work as adviser if Deutsche Bank issues shares.
However, since the size of the fine has not yet been decided, Deutsche Bank has not made any final decisions and is still contemplating the matter. Notably, in September, Deutsche Bank’s CEO, John Cryan told a newspaper that he has no plans to raise capital.
Other Options the Bank may Consider
Per some officials familiar with the situation, Deutsche Bank could also think of selling its Deutsche Postbank unit or parts or all of its asset management division to raise cash.
However, according to Autonomous Research LLP, the bank is more likely to tap existing shareholders for funds, instead of selling its asset management division or merging with Commerzbank AG.
Since the amount of shortfall could be huge, given the banks’ small litigation reserve, Stuart Graham, chief executive officer at Autonomous said that all these other options are “unattractive” for Deutsche Bank.
Deutsche Bank shares touched a record low last month after the fine was initially proposed by the Government.
According to IMF chief Christine Lagarde, “Deutsche Bank, like many other banks, has to look at its business model.” She further added, “It has to look at its long-term profitability – given the lower-bound interest rates we have around the world and probably for longer than many expect – and decide what size it wants to have and how it wants to strengthen its whole balance sheet.”
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Deutsche Bank Explores Capital-Raising Options with Banks
In order to deal with the huge potential legal fine, Deutsche Bank AG (DB - Free Report) is in informal talks with various other firms to explore options, including raising capital.
Some of these options discussed by the representatives at Deutsche Bank and various senior advisers at top Wall Street firms include a share sale and disposal of assets. However, since the plans are not yet public, a spokeswoman for Deutsche Bank declined to comment.
The U.S. Department of Justice has proposed to fine the bank with $14 billion for its issuance and underwriting of residential mortgage-backed securities and related securitization activities during the period between 2005 and 2007.
Additionally, the Bank may also have to face a fine in a money-laundering probe tied to its Russia operations, which might cost it as much as €2 billion.
Notably, as of Jun 30, 2016, the bank only had €5.5 billion ($6.2 billion) in its litigation reserves and hence its plans to raise capital.
Understanding the situation, some of Germany’s blue-chip companies are ready to help the bank in underwriting a stock sale that would help it raise about €5 billion ($5.6 billion). This is probably the maximum amount that Deutsche Bank can raise by selling shares without prior approval by shareholders.
According to a Bloomberg report, JPMorgan Chase & Co. (JPM - Free Report) , The Goldman Sachs Group Inc. (GS - Free Report) , Morgan Stanley (MS - Free Report) and Bank of America Corporation are the top advisers on global share issuance this year. So, any of these companies may work as adviser if Deutsche Bank issues shares.
However, since the size of the fine has not yet been decided, Deutsche Bank has not made any final decisions and is still contemplating the matter. Notably, in September, Deutsche Bank’s CEO, John Cryan told a newspaper that he has no plans to raise capital.
Other Options the Bank may Consider
Per some officials familiar with the situation, Deutsche Bank could also think of selling its Deutsche Postbank unit or parts or all of its asset management division to raise cash.
However, according to Autonomous Research LLP, the bank is more likely to tap existing shareholders for funds, instead of selling its asset management division or merging with Commerzbank AG.
Since the amount of shortfall could be huge, given the banks’ small litigation reserve, Stuart Graham, chief executive officer at Autonomous said that all these other options are “unattractive” for Deutsche Bank.
Deutsche Bank shares touched a record low last month after the fine was initially proposed by the Government.
According to IMF chief Christine Lagarde, “Deutsche Bank, like many other banks, has to look at its business model.” She further added, “It has to look at its long-term profitability – given the lower-bound interest rates we have around the world and probably for longer than many expect – and decide what size it wants to have and how it wants to strengthen its whole balance sheet.”
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>.