Bloomberg News

Deutsche Bank May Seek to Raise $12.7 Billion, Mediobanca Says

January 09, 2012

Jan. 9 (Bloomberg) -- Deutsche Bank AG may raise 10 billion euros ($12.7 billion) to ease concern among investors and regulators that Germany’s biggest bank is under-capitalized, according to Mediobanca SpA analysts.

The Frankfurt-based lender may seek 1.5 billion euros by selling 80 percent of its asset-management business and a further 8.5 billion euros from a share sale after publishing its 2011 earnings in early March, the analysts, including Christopher Wheeler in London, wrote in a note today.

Bank regulators are speeding the introduction of rules that force lenders to hold more capital to withstand future crises without government bailouts. Deutsche Bank, which navigated the financial crisis without state aid, may face pressure to reach a capital level prescribed by the Basel Committee on Banking Supervision earlier than its target of 2019, Mediobanca said.

“Deutsche Bank’s new management team is likely to take the bull by the horns and deal with the bank’s relative capital weakness sooner rather than later,” said the analysts at Mediobanca, which cut its recommendation on the stock to “underperform’’ from “neutral.”

Ronald Weichert, a spokesman for Deutsche Bank, declined to comment.

Deutsche Bank’s ratio of core Tier 1 capital to risk- weighted assets under Basel III rules will be 7 percent in 2012 and 8 percent in 2013, according to Mediobanca estimates. That would be the lowest among a peer group of Barclays Plc, Credit Suisse Group AG, Goldman Sachs Group Inc., JPMorgan Chase & Co., Morgan Stanley and UBS AG, according to the brokerage.

Sale Discount

An 8.5 billion-euro share sale would be “comfortably” covered by the company’s current authorizations, which could yield about 14 billion euros of equity with a 30 percent discount to the current share price, the Mediobanca analysts wrote.

Deutsche Bank is likely to achieve the target 9 percent core Tier 1 capital ratio set by the European Banking Authority for the end of June and will attain a 10 percent Basel III “fully loaded” capital ratio by 2015 with retained earnings, Exane BNP Paribas analysts said in a separate note today.

The EBA’s capital rules are less strict than those proposed under Basel III.

Deutsche Bank said on Dec. 8 that it would reach the target 9 percent core Tier 1 capital ratio set by the EBA by the end of 2011, six months early, after making “significant progress” during the fourth quarter.

A “secondary scenario” is that the German bank will issue 5 billion euros or as much as 10 billion euros to close the gap in the shorter term, according to the brokerage, which reinitiated coverage of the stock with a “neutral” recommendation.

“In this case, the effect on investors would be mitigated by dividend policy,” the Exane analysts wrote. “With the short-term capital gap closed, Deutsche Bank could significantly increase the payout ratio.”

--With assistance from Aaron Kirchfeld in Frankfurt and Francesca Cinelli in Milan. Editors: Dylan Griffiths, Francis Harris.

To contact the reporter on this story: Nicholas Comfort in Frankfurt at ncomfort1@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net


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