LONDON (BLOOMBERG) - Deutsche Bank is holding informal talks with securities firms to explore options including raising capital should mounting legal bills require it, according to people familiar with the discussions.
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. A spokeswoman for Deutsche Bank declined to comment.
The banks are offering to help underwrite a stock sale to raise about 5 billion euros (S$7.65 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 US 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 US$4 billion to US$8 billion based on earlier settlements, the people said.
JPMorgan Chase & Co, Goldman Sachs, Morgan Stanley and Bank of America are the top-ranked advisers on share sales globally this year, according to data compiled by Bloomberg.
Some bank managers are also offering public words of encouragement, which could help secure mandates down the road. JPMorgan chief executive officer Jamie Dimon, in an interview with CNBC on Oct 4, said the German lender should be able to weather its problems.
Deutsche Bank CEO John Cryan told Germany's Bild newspaper in late September that he doesn't plan to raise capital.
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 US, German newspaper Handelsblatt reported on Thursday (Oct 6). Some of the bank's biggest shareholders include the Qatari royal family, BlackRock and Norges Bank, according to data compiled by Bloomberg.
Deutsche Bank shares touched a record low last month after the government initially requested US$14 billion to settle the probe, more than twice the 5.5 billion euros that the lender had set aside for litigation as of the end of June. Deutsche Bank may also face a penalty in a money-laundering probe tied to its Russia operations, with analysts at Barclays speculating it could cost them as much as 2 billion euros.
Cryan has sought to reassure investors that he's able to boost profitability as concerns about mounting legal costs prompted investors to question the lender's financial health. Deutsche Bank has long struggled to adapt to an era of tougher capital requirements and diminished trading revenue. Mr Cryan has already said that the lender may fail to be profitable this year, calling it a peak restructuring year, as he eliminates thousands of jobs and cuts risky assets.
The lender's CET1 ratio, a measure of financial strength, was at 10.8 per cent at the end of June. It seeks to reach a ratio of at least 12.5 per cent by the end of 2018.
Investors and bankers have also called on Deutsche Bank to provide clarity on its business strategy. The debate revolves around whether the firm should retain its status as a universal financier - that provides investment banking, asset and wealth management and retail while shrinking fixed income and cutting costs to muddle through - or if it should retreat to its roots of being a German and European corporate lender and retail bank, jettisoning the investment bank.
Deutsche Bank could also revisit selling its Deutsche Postbank unit or parts or all of its asset management division to raise cash, according to people familiar with the matter.
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, Autonomous Research LLP said in a note on Oct. 3.
Assuming litigation charges come to US$5.6 billion from the Justice Department and US$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.