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Deutsche Bank (DB) Raises $8.6B Capital at 35% Discount

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As part of its restructuring efforts, the German banking giant, Deutsche Bank AG (DB - Free Report) , announced the issuance of new shares worth €8 billion ($8.6 billion) at 35% discount to Friday's closing price in a rights offering. The capital increase plan, announced earlier this month, comprises issuance of 687.5 million new shares at €11.65 per unit, with subscription rights for the bank’s existing shareholders.

Notably, the offer is comparative with the stock’s closing price of €17.86 on Friday, representing around 41% discount on the stock price traded on Mar 3, the day Bloomberg first reported news of the capital raising.

Per terms of the issue, existing shareholders of Deutsche Bank are permitted to subscribe for 1 new share for 2 shares held. Notably, the subscription rights are expected to trade on German exchanges from Mar 21 to Apr 4 and on the NYSE from Mar 21 to 31.

The recent capital raising is the fourth capital infusion by Deutsche Bank since 2010.

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 the bank to 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 (CS - Free Report) , 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 anticipated, through asset disposals and flotation of a minority stake of Deutsche Asset Management.

Notably, Deutsche Bank might vend its Indian retail businesses, which will help boost its capital levels. The German lender might also go ahead with the sale of its retail operations in the European countries, including Spain.


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 lower 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 50.2% over the last six months, as against 15.4% gain of the Zacks categorized Foreign Banks industry.

At present, Deutsche Bank carries a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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