Deutsche Bank in trou­ble as in­vestors ‘lose faith’

The Pak Banker - - COMPANIES/BOSS -

Deutsche Bank bosses face a for­mi­da­ble task to drag its shares off a 30-year low, with re­as­sur­ances about its cap­i­tal lev­els do­ing lit­tle to im­prove in­vestor con­fi­dence and few other op­tions on the ta­ble to trig­ger a re­cov­ery.

Ger­many's flag­ship len­der has trailed its ri­vals in bounc­ing back from the 2008 fi­nan­cial cri­sis, ham­strung by hav­ing to pay out bil­lions of dol­lars in fines to end a string of le­gal dis­putes and age­ing tech­ni­cal in­fra­struc­ture.

It is the last of the ma­jor Euro­pean banks to em­bark on a painful re­struc­tur­ing of its bloated in­vest­ment bank, in the face of tougher regulation that re­duced prof­itabil­ity, and the cost of that over­haul con­trib­uted to it post­ing its big­gest an­nual loss on record last month.

Deutsche Bank's shares have fallen around 40 per­cent since the start of the year, lead­ing a slump across the Euro­pean bank­ing sec­tor - with a re­lief rally on Tues­day af­ter the bank said it had re­serves to pay coupons on its riski­est type of debt ex­tin­guished and erased by the af­ter­noon.

Share­hold­ers are wor­ried about the abil­ity of man­age­ment to ex­e­cute a twoyear turn­around plan, an­nounced last Oc­to­ber, against the back­drop of a de­te­ri­o­rat­ing global eco­nomic out­look and neg­a­tive in­ter­est rates.

"In­vestors have com­pletely lost their faith in the bank," a top 10 share­holder told Reuters, adding that a fast re­cov­ery in the share price was un­likely given the mag­ni­tude of the prob­lems weigh­ing on the com­pany.

Sev­eral in­vestors told Reuters they feared Deutsche would need to tap mar­kets for more cap­i­tal - de­spite rais­ing a to­tal of nearly 20 bil­lion euros (16 bil­lion pounds) from in­vestors in 2010 and 2014 - to deal with reg­u­la­tory and le­gal is­sues.

"We be­lieve that Deutsche Bank has a cap­i­tal short­fall of up to 7 bil­lion euros, de­pend­ing on the out­come of a range of lit­i­ga­tion is­sues, which could ne­ces­si­tate a highly di­lu­tive cap­i­tal in­crease," Citi an­a­lysts wrote in a note last week.

Deutsche Bank de­clined to com­ment on its cap­i­tal po­si­tion when con­tacted by Reuters. But the bank's co-Chief Ex­ec­u­tive John Cryan wrote to em­ploy­ees on Tues­day, telling them they could re­as­sure clients the bank's cap­i­tal po­si­tion was "ab­so­lutely rock solid".

"The mar­ket also ex­pressed some con­cern about the ad­e­quacy of our le­gal pro­vi­sions but I don't share that con­cern. We will al­most cer­tainly have to add to our le­gal pro­vi­sions this year but this is al­ready ac­counted for in our fi­nan­cial plan," he added.

But sev­eral in­vestors said they felt time was run­ning out for the bank to show suc­cesses - such as re­turn­ing to profit or sta­bi­liz­ing its share price - af­ter other large lenders had moved on and closed the chap­ter of fi­nan­cial cri­sis.

"There's no ben­e­fit of the doubt," an­other top 10 in­vestor said, adding cur­rently in­vestors were vot­ing with their feet. "Two years (as planned by Cryan for the re­vamp) is a long time. There's no mar­gin for er­ror." Ques­tions are also be­ing raised about the qual­ity of the bank's su­per­vi­sory board.

"We miss com­pe­tence in fi­nan­cials on the su­per­vi­sory board," said the first top 10 share­holder, adding that sup­port for Chair­man Paul Ach­leit­ner was also wan­ing and a new face was needed for a fresh start for the bank.

"How­ever, at this stage, there's no ob­vi­ous can­di­date to suc­ceed him, so he will likely be kept in charge un­til the end of his man­date in May 2017," the share­holder said. Deutsche de­clined to com­ment on Ach­leit­ner's po­si­tion or about in­vestor con­cerns about the board.

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