Bloomberg News

Deutsche Bank Cut to ‘Neutral’ by JPMorgan on Capital Deficit

January 24, 2012

Jan. 24 (Bloomberg) -- JPMorgan Chase & Co. reduced its recommendation on Deutsche Bank AG shares to “neutral,” citing an estimated 7.6 billion-euro ($9.85 billion) capital deficit at Germany’s biggest lender.

The stock will probably trade between 25 euros and 33 euros a share in the “medium term” until the deficit is addressed, JPMorgan analysts Kian Abouhossein and Amit Ranjan wrote in a note to clients today. Deutsche Bank fell 3.5 percent to 32.35 euros as of 3:29 p.m. in Frankfurt.

“Post Deutsche Bank’s management changes from June 2012, we hope for capital issues to be addressed through equity issuance,” the analysts wrote.

Deutsche Bank indicated in October that the lender has 450 million shares in authorized and registered capital, which would be worth 14.6 billion euros at a share price of 32.5 euros, according to JPMorgan. The German firm is probably authorized to issue 90 million shares through a so-called accelerated book- build, the brokerage said.

JPMorgan estimates Deutsche Bank will have a capital shortfall of 7.6 billion euros by the end of 2012 if Basel III rules are fully applied. The brokerage lowered its estimate from 10.4 billion euros, saying Deutsche Bank probably accelerated efforts to lower risk-weighted assets.

The brokerage also cited the erosion of Deutsche Bank’s advantage over competitors in borrowing after the European Central Bank flooded the banking system with three-year loans and the stock’s performance against peers since September as grounds for its recommendation change.

A sale of some of Deutsche Bank’s asset-management business would probably improve the company’s capital by 1.1 billion euros, assuming 2 billion euros in sales proceeds, and reduce risk-weighted assets by 7 billion euros, according to JPMorgan estimates.

--Editors: Dylan Griffiths, Francis Harris.

To contact the reporter on this story: Nicholas Comfort in Frankfurt at

To contact the editor responsible for this story: Frank Connelly at

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