Deutsche Bank plans share sale and part disposal of asset unit

Deutsche Bank AG will offer €8 billion of stock, sell part of its asset-management business and named two deputies to chief executive John Cryan as Germany's largest lender seeks to shore up capital after two consecutive years of losses.

The bank said it would keep its Postbank consumer division and still aimed to reduce total costs to €22 billion by 2018, the Frankfurt-based company said in a statement on Sunday.

Chief financial officer Marcus Schenck and Christian Sewing, who oversees wealth management and consumer banking, will become co-deputy chief executives. The company will find a new CFO “in due course”.

The measures mark a reversal for Mr Cryan, who had unsuccessfully sought to sell Postbank to avoid tapping shareholders for extra cash. Deutsche Bank has posted more than €8 billion of net losses in the past two years as Mr Cryan, who took over in 2015, settled misconduct investigations and scaled back capital-intensive debt-trading businesses.

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“A strong capital base is essential if we’re to succeed in charting this strategy,” Mr Cryan wrote in a letter to employees.

The share sale would “remove a major source of uncertainty. That should make us significantly more attractive for our clients.”

Dividend

The lender said it would 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 of capital. The bank will propose a dividend in May of 0.19 euro per share.

Jeff Urwin, who led the investment banking division, will retire from the management board after a transition period, the bank said. Cryan will take direct oversight for the US 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.

The bank said the share sale would boost its common-equity Tier 1 ratio to 14.1 per cent and set a new target of “comfortably above” 13 per cent. The measure stood at 11.9 per cent at the end of 2016, shy of the then-target of 12.5 per cent for the end of 2018.

Deutsche Bank plans to issue a prospectus for the share sale on March 20th, subject to regulatory approval, and existing shareholders can subscribe to the offering until April 6th, according to the statement.

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 by 2021. It expects €2 billion of severance and restructuring costs, most of which will come over the next two years.

US demand

Losses and mounting legal bills raised doubts about Deutsche Bank’s financial strength, which intensified after the US justice department in September demanded $14 billion (€13.2 billion) to end an inquiry into mortgage securities that fuelled the 2008 financial crisis. Investors were relieved when the settlement in December came at about half that amount.

That helped almost double the lender’s share price since September 26th and made a potential stock sale more attractive. Prior to the plan announced on Friday, Cryan had been focused on selling Postbank to raise capital. But the bank has been unable to find a buyer for the unit, which employs 18,000 people.

Deutsche Bank fell 1.3 per cent to close at €19.14 in Frankfurt on Friday, and shares traded in the US continued to drop after Bloomberg reported on the plans to raise capital. The stock trades at about half the bank's tangible book value, below European peers including UBS Group AG, which trades at 1.3 times book, and France's BNP Paribas SA at 0.9 times book. – (Bloomberg)