New Restructuring

Deutsche Bank Prepares €8-Billion Capital Hike, Board Reshuffle

Deutsche Bank – John Cryan
CEO John Cryan is preparing bold measures to strengthen the bank. Source: Arne Dedert / DPA

Deutsche Bank announced a set of far reaching new measures to reverse the company’s fortunes for once and for all. It is preparing for a possible €8-billion, or $8.5-billion, capital increase and several further strategic steps, Germany’s largest bank said in a statement Friday evening.

The bank’s shares had fallen earlier on Friday after news agency Bloomberg had reported on a possible share sale.

The Frankfurt-based bank is burdened by investment banking missteps dating back to the last decade and billions of euros in settlements and fines. The bank now plans to keep its retail subsidiary Postbank — instead of divesting it — and to sell a minority stake in Deutsche Asset Management through a public stock listing, the bank said.

Deutsche Bank’s supervisory board plans to meet on Sunday to decide on the measures, people familiar with the matter told Handelsblatt. The bank will use the proceeds from the share sale to meet future capital requirements and fund its restructuring.

“Implementation is subject to market conditions and approval by the Management Board and the Supervisory Board. At this stage, no decision to proceed has been made,” the bank said in a statement.

If the restructuring gets the green light, it would be the most radical step by Chief Executive John Cryan to turn the bank’s fortunes after legal costs and investment banking fines and settlements created losses of €6.8 billion and €1.4 billion in 2015 and 2016 respectively. Mr. Cryan took the helm in July 2015, effectively taking over from Anshu Jain and Jürgen Fitschen. The latter officially remained co-CEO for another year.

Deutsche Bank, which announced in October 2015 plans to cut 15,000 job, paid $2.5 billion in 2015 to settle allegations of interest rate manipulation. In December 2016, the bank agreed to a $7.2 billion settlement to settle U.S. charges it improperly sold mortgage-backed securities. In September 2016, there were fears the institute might need a state bailout to overcome its problems, although both the bank and the German government denied such a move came into question.

“The capital increase is a correct and logical next step to reset the bank’s position and bring its business forward,” said asset manager Ingo Speich of Union Investment. The measures are “an important signal to the capital market that after years of preoccupation with the past the bank is again focusing more on its future and its clients.”

As part of its new plan, the bank, worth €26.7 billion on the stock market, will name Christian Sewing, head of private and commercial banking, and finance head Markus Schenck, as co-deputy CEOs to support Mr. Cryan in executing the restructuring, people familiar with the matter told Handelsblatt.

In future, the bank will have three main pillars, consisting of private, commercial and wealth clients, including Postbank; asset management; and, thirdly, investment banking, the sources said. Mr. Schenck and Garth Ritchie, currently head of trading, will jointly lead the investment banking business. Jeffrey Urwin, currently head of corporate and investment banking, is expected to step down from his post, sources told Handelsblatt. The bank is still looking for a successor to CFO Mr. Schenck.

Deutsche Bank’s last big capital increase took place three years ago, when it raised €8.5 billion, including €2.2 billion from Qatar. Since the end of the financial crisis of 2008-09, the bank has raised some €24 billion from its shareholders, but has also spent €15 billion on settlements, fines and legal costs for thousands of other lawsuits.

 

 Michael Maisch is the deputy editor of the finance desk for Handelsblatt and based in Frankfurt, Germany’s financial capital. Daniel Schäfer heads Handelsblatt’s finance desk and is also based in Frankfurt. To contact the authors: maisch@handelsblatt.com and schaefer@handelsblatt.com

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