Deutsche Bank to focus on growth after raising $8.5bn

Bloomberg

Deutsche Bank AG Chief Executive Officer John Cryan said he plans to focus on restoring revenue growth after the lender raised 8 billion euros ($8.5 billion) from shareholders to bolster capital.
In a letter to employees, Cryan said he will aim for “prudent growth,” even as cost reductions continue. While many investors and analysts in Europe were still sceptical about banks, US investors have been more positive during the capital raising, he wrote.
“They have seen first-hand how well banks are recovering in their home market and how profitable they can be,” Cryan wrote, adding the US will continue to be a major market for the bank. “They expect us to turn the corner, too.”
Cryan, who cut thousands of jobs since taking over in 2015, last month unveiled a revised turnaround plan that calls for the integration of the Postbank consumer-banking unit and a reorganization of the investment bank under a new leadership team. The capital raising may help alleviate concerns about the lender’s financial strength, which contributed to a decline in its market share in the fourth quarter.
“It is a tough environment and everyone wants a piece of the cake, but they should be able to win back the trust of clients and that will show in the share price,” said Markus Riesselmann, an analyst at Independent Research who has a hold recommendation on the shares. The results of the share sale are “pretty much in line with expectations, but there are clearly still some concerns about the bank’s loss of market share.”
Deutsche Bank fell 1.1 percent at 3:45 p.m. in Frankfurt trading, paring gains this year to 0.7 percent. The stock trades at a 53 percent discount to its tangible book value, the worst valuation among global investment banks, signaling investors doubt the company’s assets are worth as much as its accounts indicate.
Cryan, who had sought to avoid tapping shareholders, reversed course after the bank failed to find a buyer for Postbank and the shares almost doubled from their September low. He also plans to sell a minority stake in the bank’s asset-management unit along with smaller asset disposals.
The total sum expected to be raised through the capital increase and asset sales is 10 billion euros, making the combined measures the bank’s biggest such exercise in seven years.
“We certainly welcome the increase in the capital base at the major European banks and Deutsche is a very important part of the European banking system,” BlackRock Inc. Vice Chairman Philipp Hildebrand said in an interview on Bloomberg TV, without elaborating what volume of shares the world’s biggest asset manager purchased. BlackRock is one of the bank’s largest investors.

‘GROW AGAIN’
European banks have rallied on the prospect that economic growth and rising interest rates could help revive earnings. UniCredit SpA, Italy’s biggest bank, managed to raise 13 billion euros in a share sale earlier this year. That’s a stark reversal from just half a year ago, when both UniCredit and Deutsche Bank plunged on concerns that rising legal costs and soured loans would undermine their financial strength.
“Thanks to a stronger balance sheet, we have the ability to increase business,” Cryan said in his letter. “We will be able to grow again in a more focused way.” Investors agreed to buy 98.9 percent of the stock in the rights offering, with the rest of the new shares to be sold in the market. The lender’s fourth capital increase since 2010 brings the total proceeds raised over the past seven years to 29.7 billion euros, almost as much as Deutsche Bank’s current market value of about 32 billion euros.
Deutsche Bank said earlier that the capital increase was fully underwritten at 11.65 euros a share by about 30 banks including Credit Suisse Group AG, Barclays Plc, Goldman Sachs Group Inc., BNP Paribas SA, Commerzbank AG, HSBC Holdings Plc, Morgan Stanley and UniCredit.
Qatar’s royal family and China’s HNA Group Co., two of Deutsche Bank’s biggest investors, had planned to buy shares in this week’s rights offer with a view to increasing their stakes, according to people with knowledge of the matter.