Time to grow, says Deutsche after fourth cash call

Deutsche Bank’s CEO said on Friday that an era of cutbacks was over after the bank completed an €8bn capital increase to pay legal penalties, keep regulators happy and make fresh investments.

“It is clear that we will not succeed by shrinking further,” John Cryan said in a letter to staff after Deutsche Bank’s latest capital hike, which took its total capital raised over seven years to €30bn, just below its market value.

Cryan’s cash call was backed by top shareholders — a group of Qatari investors, US fund Blackrock and China’s HNA Group — whose stakes and influence over Germany’s biggest bank would otherwise have been diluted, one source said.

“Our capital increase should eliminate any remaining doubt about Deutsche Bank’s stability. This is why it’s even more important to focus on a topic that has been in the background for quite some time: growth,” the British CEO said.

Deutsche Bank shares closed 0.96% weaker on Friday in Frankfurt after earlier being down 1.8%.

Deutsche Bank’s fourth capital hike since 2010, previously described by Cryan as a last resort, involved about 80% of shareholders buying new shares, while the rest sold their rights, sources told Reuters.

Cryan, who has pledged to reward shareholders’ trust by seeing through a turnaround of Deutsche, acknowledged that recent feedback showed that while many investors and analysts in Europe were still sceptical about Germany’s biggest lender, US investors were more positive.

“They have seen first-hand how well banks are recovering in their home market and how profitable they can be. They expect us to turn the corner, too,” Cryan said.

The high-margin US market, which accounts for half of Deutsche Bank’s global investment banking revenues, would play an important role, he added, vowing to steer clear of business that could come back to haunt it later in litigation costs. Deutsche Bank has transformed itself into a major player on Wall Street over the past two decades, but extravagant bets and poor conduct have resulted in a litigation bill of €15bn since 2009.

Cryan has focused on damage limitation and cost-cutting since taking over first as coCEO in 2015 and then becoming sole CEO in 2016.

The next big step in Deutsche’s reorganisation, announced in March, is a plan to list a minority stake of its asset management business, which includes its mainstay DWS retail asset management brand.

While a listing is no longer needed to get capital in line with regulatory demands — its capital ratio will now rise to 14.1% versus the European Central Bank’s minimum of 9.5% — it could help lift Deutsche’s valuation.

European banks, on average, trade just below their book value and Deutsche trades at half of its book value, while listed asset managers such as Schroders, Henderson and Aberdeen trade at more than twice book value.

Although Deutsche Bank has vowed to carry out the initial public offering within two years, people close to the matter said the listing, which could value the asset management business at up to €8bn, might be launched in the European autumn.

NEXT STEP

The expected listing of 10%-20% of the asset management business would go ahead only if equity markets were buoyant and it was able to fetch an attractive price, the sources said. A listing would also give the asset management division a paper currency for potential acquisitions and shares, which could be used to incentivise management.

THE NEXT BIG STEP IS A PLAN TO LIST A MINORITY STAKE OF ITS ASSET MANAGEMENT BUSINESS