dealing with its past misdeeds and huge losses.
The strategic
revamp, decided at a supervisory board meeting on Sunday, follows a net loss of
1.4 billion euros last year and is part of the lender's push to draw a line
under a string of scandals that have hammered its balance sheet since 2012.
The decision
marks a retreat from a strategy announced less than two years ago when the bank
separated its investment banking and markets business, and heralds its fourth
capital hike since 2010.
"On
strategy, it's obvious we had a change of heart," Chief Executive John
Cryan said on a call with journalists on Sunday afternoon.
"These
measures will make Deutsche Bank stronger and place us back firmly on a path to
sustainable growth".
Deutsche plans
to launch an 8 billion euro ($8.5 billion) rights issue of 687.5 million new
shares on March 21, priced at around a 39 percent discount to Friday's closing
price of 19.14 euros.
The bank said
it also plans to list a minority stake in its asset management business and
sell off other assets to raise a further 2 billion euros which, with the rights
issue, should take its capital ratio above 13 percent.
Deutsche will
reunite its cash cow securities trading unit and corporate finance business under
one roof, having separated them in 2015. The bank said those divisions, which
will be combined with its transaction banking group, will now focus
predominantly on serving corporate clients and less on institutional ones such
as pension and hedge funds.
In another
about-face, the lender scrapped plans to sell its Postbank unit, saying it was
unable to do so at an acceptable price. Instead, it now wants to reintegrate
the operation into its other German retail business.
"We are
very positive over prospects of banking in Germany," Cryan said.
Those measures
mean the bank will have just three business divisions going forward: a private
and commercial bank focused on Germany, a corporate and investment bank, and
its asset management business.
Deutsche will promote
retail banking head Christian Sewing and finance head Markus Schenck to oversee
the revamp as co-deputy CEOs alongside Cryan.
Schenck will
also become co-head of the investment bank alongside Garth Ritchie, who
currently heads the bank's bond and equities trading activities. Jeffrey Urwin,
head of corporate and investment banking, is expected to step down later this
year.
LAGGING BEHIND
While
litigation costs and writedowns on past acquisitions have weighed on Deutsche
Bank's earnings, it has also fallen behind its Wall Street rivals, lagging
their strong fourth quarter rebound in bond trading for instance.
It has spent
the past 18 months trimming down its product offering, throwing out
unprofitable clients and trying to get its convoluted information technology
into better shape.
However the
$7.2 billion settlement it reached with the U.S. Department of Justice in
December for selling toxic mortgage backed securities and its struggling
markets business meant Deutsche Bank needed more radical action to bolster its
balance sheet.
The coming
couple of months are seen as a good window by bankers for it to raise cash,
coming ahead of France's presidential election in May and at a time when stock
markets are at record highs.
Deutsche
is likely to have taken heart from the success of rival UniCredit's (CRDI.MI)
capital hike last month, when it raised 13 billion euros in Italy's biggest
ever rights issue.
A regulatory
source said there had been no pressure from regulators on Deutsche Bank to
raise capital and that it appeared to be a strategic decision.
Many of the
bank's investors see it as a necessary move despite the billions already plowed
into the bank in the past seven years. Since 2010 Deutsche Bank has raised more
than 20 billion euros in fresh capital, yet its market value stands at just
26.4 billion.
"The
announced measures are an important signal for the capital market that the bank
is now focusing more on its future and its customers after years of dealing
with the past," fund manager Ingo Speich at Union Investment said.
A person close
to Qatar, Deutsche Bank's largest shareholder with a stake of just below 10
percent, agreed.
"The fact
that they are doing a capital raising is no surprise. It has been rumored for
long. The sale of a minority stake in the asset management is something in the
right direction," the source said.
Cryan said
that the bank did talk about the rights issue with one of Deutsche Bank's major
shareholders and was told the shareholder would take up its subscription
rights.
Deutsche Bank
shares have recovered from a record low of 9.90 euros last autumn, but are
still down a third from the time Cryan took office in July 2015. They trade at
less than half of Deutsche Bank's book value, placing the lender among the 10
weakest banks in Europe and far off the peer average of just below book value.
The rights
issue is initially being underwritten by Credit Suisse, Barclays, Goldman
Sachs, BNP Paribas, Commerzbank, HSBC, Morgan Stanley and UniCredit.
*REUTERS*
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