Under-pressure Deutsche Bank said to be considering bond buyback

Deutsche Bank is expected to focus its emergency buyback plan on senior bonds, of which it has about 50 billion euros (S$78.8 billion) in issue, the FT said.
Deutsche Bank is expected to focus its emergency buyback plan on senior bonds, of which it has about 50 billion euros (S$78.8 billion) in issue, the FT said.PHOTO: REUTERS

NEW YORK (REUTERS, BLOOMBERG) - Deutsche Bank is considering buying back several billion euros of its debt in an attempt to shore up the tumbling value of its securities, the Financial Times reported.

The FT said Deutsche Bank is expected to focus its emergency buyback plan on senior bonds, of which it has about 50 billion euros (S$78.8 billion) in issue.

The move was unlikely to involve Additional Tier 1 bonds, the paper said, citing people briefed on the plan.

The bank's shares and AT1 bonds have seen a dramatic sell-off in recent days.

A spokesman for Deutsche Bank declined to comment.

Deutsche Bank could generate capital gains by buying back bonds at a discount to their face value. Many banks bought back billions of euros of their bonds following the financial crisis.

"The way their debt is trading it could make a lot of sense for them," said Mr Bill Scapell, director of fixed income at Cohen & Steers. "They're a well capitalised bank and some of the debt is trading like they're having liquidity problems. They're taking advantage of a misperception in the market."

Deutsche Bank co-chief executive John Cryan earlier on Tuesday (Feb 9) told staff and investors that the bank was "rock solid" as he sought to halt the sell-off. But its shares fell another 4 per cent, taking their slump this year to about 41 per cent, while credit-default swaps on its bonds have more than doubled, climbing each of the seven days through Monday.

The swaps, which typically fall as investor confidence improves and rise as it deteriorates, pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals US$1,000 annually on a contract protecting US$10 million of debt.

Deutsche Bank's US$1.5 billion of 4.5 per cent subordinated notes due April 2025 have fallen 9.8 cents since year-end to 82.56 cents on the dollar to yield 7.1 per cent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. Those bonds traded as low as 79.98 cents earlier Tuesday.

In a statement on Monday seeking to ease concerns about keeping up with its riskiest debt, Deutsche Bank said it has room to pay about 1 billion euros in 2016 - enough to cover about 350 million euros in additional Tier 1 coupons due in April. The estimated payment capacity for 2017 is about 4.3 billion euros, boosted in part by proceeds from the announced sale of a stake in Huaxia Bank Co, the lender said. The 2017 estimate is before any effect from 2016 profit or losses.