Despite proclamations from various officials, business leaders, and mainstream media pundits that Deutsche Bank's demise was: a) driven by speculators, b) not driven by any need for liquidity, because c) the bank has plenty of capital… it doesn't. As Bloomberg reports, no matter how much the DoJ fine is watered-down (don't expect much), the most systemically dangerous bank in the world is holding informal talks with securities firms to explore options including raising capital; but while the lender has several options, as one analyst noted rather awkwardly, “they’re all unattractive.“
After three straight days up – soaring 25% off last Friday's lows, thanks to a disproven rumor of a pending settlement with the DoJ – Deutsche Bank closed down 4% from its opening highs today, beginning the slow path to catch down to CDS-implied pain…
Deutsche Bank CEO John Cryan told Germany’s Bild newspaper in late September that he doesn’t plan to raise capital. But now it seems, perhaps the weakness in the credit market was warranted as Bloomberg reports senior advisers at top Wall Street firms are speaking to representatives of the German lender about ideas including a share sale and asset disposals, said the people, who asked not to be identified because the plans are private.
The banks are offering to help underwrite a stock sale to raise about 5 billion euros ($5.6 billion) should the bank need it, the people said. That is about the maximum amount in discounted shares Deutsche Bank can sell without needing shareholder approval, if the firms decide to raise capital, the people said. The firm could also go to shareholders to request approval for more funds.
Deutsche Bank is deliberating whether to sell the shares once it reaches a settlement with the U.S. Justice Department on a probe tied to residential mortgage-backed securities, said the people. No final decisions have been made and the bank could decide against a capital increase, they said. The result will largely depend on the size of the fine, which Bloomberg Intelligence estimates may range from $4 billion to $8 billion based on earlier settlements., the people said.
Deutsche Bank has also informally spoken to potential anchor investors, including new and existing shareholders, to back a possible capital increase, the people said.
Some of Germany’s biggest publicly traded companies are prepared to buy shares in Deutsche Bank to prop up the lender in the event of a potentially crippling legal fine in the U.S., German newspaper Handelsblatt reported on Thursday.
The bank is more likely to tap existing shareholders for funds to help weather mounting legal costs rather than selling asset management or merging with Commerzbank AG, Autonomous Research LLP said in a note on Oct. 3.
Assuming litigation charges come to $5.6 billion from the Justice Department and $2.5 billion from the money-laundering probe, the fees would spark a capital shortfall of as much as 9.5 billion euros, Stuart Graham, chief executive officer at Autonomous, said in a note. While the lender has several options, they’re all “unattractive,” he said.
“Storm in a teacup” we are sure. As UBS CEO said – without hint of sarcasm – “the European banking sector is quite sound…wouldn't look at one idiosyncratic situation as being a good proxy for the entire banking industry.”
How about 2 or 3 or 5 or 10?