Deutsche Bank has clinched its takeover of Deutsche Postbank, a milestone for Germany's flagship lender as it seeks to diversify its refinancing base amid new liquidity and capital rules.
Deutsche Bank said today it would consolidate Postbank by year's end after securing by tender an additional 21.48 per cent stake in Germany's largest retail bank on top of its existing 30 per cent holding.
Deutsche Bank, which depends on investment banking for more than 80 per cent of profits, will add stable earnings from Bonn-based Postbank, which has 14 million clients.
Including the costs of acquiring its initial 30 per cent stake, buying all of Postbank would cost €6.3 billion, Deutsche said.
Deutsche Bank's shares traded 2.8 per cent lower at €37.825 at 1205 GMT, in line with STOXX Europe 600 Banks index. Postbank shares slipped 0.2 per cent.
The deal also adds a stable funding source and helps Deutsche issue more pfandbriefs, or German covered bonds. The importance of refinancing became clear during the financial crisis when Lehman Brothers, Hypo Real Estate and IKB ran aground in large part due to refinancing and liquidity problems.
Pfandbriefs proved to be more resilient during the financial crisis than some other mortgage-backed securities because of the rigorous way in which the underlying assets are selected.
They must be underpinned with mortgage loans secured by residential or commercial properties mostly from Germany and the UK, as well as certain public sector and central bank debt.
Anshu Jain, Deutsche Bank's head of investment banking, last week told a banking conference that a high-quality funding base had become an essential competitive advantage.
"It is no longer possible to be a global player of scale with a pure-play model," Jain said, taking a swipe at banks that have relied only on investment banking to drive earnings.
"Indeed the value of long-dated and stable retail deposits is higher now than ever before."
Deutsche Bank got a pfandbrief issuing license in the first quarter of 2009 and launched a €1 billion pfandbrief shortly thereafter. The bank said it intended to make "frequent issuance" of pfandbriefe.
By adding Postbank, Deutsche's portfolio of retail loans swells to €209 billion, providing a larger "cover pool" of assets that can be used as collateral for pfandbriefs.
It completed its 2010 refinancing needs of €19 billion in September but may issue more pfandbriefs in 2011.
With the Postbank deal, Deutsche Bank will gain 1,100 branch offices to total around 2,900 in Germany alone. Deutsche's retail deposit base will more than double to €260 billion.
Deutsche Bank has said combined operations will yield €250 million in revenue synergies and about €710 million in cost synergies.
Reuters