Chinese conglomerate HNA has agreed to sell its 7.6 percent stake in Deutsche Bank, Germany’s biggest bank, as part of a deal with Beijing to strengthen its finances, a person familiar with HNA’s thinking told Handelsblatt. The news, first reported by the Wall Street Journal, led to an as-much-as 2.7 percent drop in Deutsche’s shares Friday.
HNA, which became the bank’s second-largest shareholder only last year, made a deal with the Chinese government in June to divest assts after a shopping spree, which included Hilton hotels and airport operator Swissport, backfired. The debt-laden company faced liquidity constraints last year. In return for government support, HNA decided to focus on its core operations of tourism and air travel — it owns China’s fourth-largest airline Hainan.
“By selling the Deutsche Bank stake we will prove that we have understood the message,” an HNA employee told Handelsblatt. The Chinese conglomerate has neither set a deadline to sell the shares nor has it found a buyer, the employee added. The company, last year heralded as an anchor investor in Deutsche Bank, will likely not part with the stake in the short term.
Loss-making Deutsche Bank, HNA and Austrian asset manager C-Quadrat, which manages the stake on behalf of the Chinese investor, declined to comment. But sources told Handelsblatt the bank and C-Quadrat were surprised by the intention to sell. In April, HNA said it would not cut its stake after it had reduced it from 9.9 percent to 7.6 percent.
Deutsche Bank’s shares continue to trade near all-time lows and it’s posted losses in the past three years as economies boomed. It has been in turmoil after risky investment banking bets and criminal behavior resulted in lawsuits and multi-billion fines in Europe and the US. It got a new CEO, Christian Sewing, in April, its third boss since 2012.
HNA has not yet issued a sell order to C-Quadrat, financial sources told Handelsblatt. Some investors are speculating that Beijing and HNA are looking to sell the stake to another Chinese investor. HNA had repeatedly stressed that the investment in Deutsche Bank was also seen as politically relevant, meaning Beijing supported it.
European banking supervisors would not mind if HNA sold its stake to a new investor. This would be “rather positive” because “one cannot say that HNA, as an anchor investor, has always had a supportive role.” Regulators from the start were surprised and even bewildered by HNA’s funding of its Deutsche Bank stake, which was backed by borrowed money and secured with derivatives issued by Swiss UBS.
Analyst Thomas Hallett, of advisory Keefe, Bruyette & Woods, said it was a good sign that Deutsche Bank could end a complicated relationship with one of its largest shareholders. After the divestment, Qatar as well as financial investors Blackrock and Cerberus would remain its biggest shareholders, with stakes of around 10 percent, around 3 percent and 4.4 percent, respectively. Without HNA, new CEO Christian Sewing will have one less thing to worry about.
Sha Hua is Handelsblatt’s correspondent in Beijing. Robert Landgraf, Michael Maisch, Daniel Schäfer and Yasmin Osman cover finance out of Frankfurt. To contact the authors: firstname.lastname@example.org, email@example.com, firstname.lastname@example.org, email@example.com and firstname.lastname@example.org