Deutsche restructure sees investment IPO as it bids to raise €8bn

Deutsche restructure sees investment IPO as it bids to raise €8bn

Deutsche Bank is going to the markets to ask investors for €8bn (US$8.5bn) to help improve its financial health as it has announced that it is to break up its business, including listing its asset management arm for sale, as it bids plans to secure its financial future.

After two years of heavy losses, Germany’s biggest bank announced plans for the huge share sale on Sunday, along with another overhaul of its strategy. The announcement also said that Jeffrey Urwin, head of corporate and investment banking, will step down, and a new chief finance officer will be sought.

Deutsche Bank said it will seek to raise about €8bn (US$8.5bn) in the coming weeks –its fourth capital hike since 2010. The four add up to a total of about €30bn (US$32bn), which more than the bank’s current market value, according to current valuations.

The move is part of a series of measures including the setting of new financial targets by the German financial giant, after spending two years dealing with its past misdeeds and huge losses. The company’s statement said that it intends to launch an US$8.5bn (€8bn) rights issue of 687.5 million new shares on March 21, priced at around a 39% discount to Friday’s closing price of €19.14.

Adjusted figures

The bank said that it has set new financial targets that replace the existing targets originally announced in October 2015. It said that it will target an adjusted cost base (including Postbank) of about €22bn by 2018 and about €21bn by 2021, compared to €24.1bn in 2016 (after business disposals).

In its statement it said that it is anticipated that this will require restructuring and severance costs of approximately €2bn, the majority of which is expected to be incurred in 2017 to 2019. The bank will aim to reach a return on tangible equity of 10% in a normalised operating environment.

Huge fines

Deutsche has, as reported, been under-fire in recent times and has been hit with huge fines from international regulators in both the US and the UK over bond mis-selling and a Russian money laundering probe. In December, as reported, Credit Suisse and Deutsche Bank both agreed to settle a decade-old toxic bond mis-selling scandal, with Deutsche agreeing to pay a fee of US$7.2bn (£5.9bn) and Credit Suisse agreeing to pay US$5.3bn (£4.26bn)

Announcing its plans for a fourth share sale, John Cryan, Deutsche Bank CEO said: “Our decisions are a significant step forward on the path to creating a simpler, stronger and growing bank. The capital increase will reinforce our financial strength substantially. The new three-pillar structure of our operating business should position us for significant growth, both in revenues and earnings.” 

Three pillar focus

Deutsche Bank  said that it will focus on three business divisions in the future:

— A Private & Commercial Bank.

— Deutsche Asset Management, which should gain more operational independence through a partial IPO

— An integrated Corporate & Investment Bank, which will comprise the bank’s Corporate Finance, Global Markets and Global Transaction Banking businesses, aiming primarily for a corporate-client led business.

The new three-pillar business division structure will be supported by a new leadership structure as decided by the bank’s supervisory board today. It will also encourage chief finance officer Marcus Schenck and retail banking boss Christian Sewing to become co-deputy chief executives under chief executive John Cryan.

Urwin to step down

Schenck will also become co-head of the investment bank alongside Garth Ritchie, who runs the bank’s bond and equities trading activities. Jeffrey Urwin, head of corporate and investment banking, will step down, and a new chief finance officer will be sought.

With regard to the capital increase and the strategic measures, Paul Achleitner, chairman of the supervisory board, said: “After the difficult restructuring of recent years, the supervisory board is convinced that these strategic, financial and personnel measures provide a firm foundation for sustainable growth. We are and will remain a bank rooted in Germany and Europe and with a sizeable presence in the global business with corporates, institutions and wealth management clients.”