Deutsche Bank AG, Germany’s largest bank, plans to raise at least 9.8 billion euros ($12.5 billion) in its biggest-ever share sale to take over Deutsche Postbank AG and meet stricter capital rules.
Deutsche Bank expects to offer between 24 euros and 25 euros a share in cash to Postbank investors to increase its 29.95 percent stake, the bank said yesterday. Postbank dropped as much as 7.5 percent to 25 euros in Frankfurt trading after Josef Ackermann, Deutsche Bank’s chief executive officer, told reporters in Frankfurt he doesn’t plan to improve the offer.
Ackermann is preparing the biggest rights offer in Europe this year as he seeks to reduce Deutsche Bank’s dependence on investment banking by gaining control of Postbank, a consumer lender based in Bonn. The funds will also help Frankfurt-based Deutsche Bank meet new rules from global regulators that more than doubled banks’ capital ratios.
“Deutsche Bank is doing it all at once -- bidding for Postbank and topping off its coffers,” said Peter Thorne, a London-based analyst at Helvea Ltd. who is reviewing his rating on the stock. “This will help them move into line with their international peers in terms of capital.”
Deutsche Bank rose 80 cents, or 1.7 percent, to 48.50 euros by 1:19 p.m. in Frankfurt, after dropping 4.6 percent on Sept. 10, giving the company a market value of 30 billion euros. Postbank declined 1.97 euros to 25.07 euros, valuing the lender at 5.5 billion euros.
Postbank Writedown
Deutsche Bank said the offer is fully underwritten by a group of banks including UBS AG, Banco Santander SA, Bank of America Merrill Lynch, Commerzbank AG, HSBC Trinkaus & Burkhardt AG, ING Groep NV, Morgan Stanley and Societe Generale SA. The bank plans to publish a prospectus on the sale Sept. 21.
Deutsche Bank expects to issue 308.6 million new shares in Germany and the U.S., it said. Shareholders will be able to purchase one new share for every two they own. The company intends to book a charge of about 2.4 billion euros in the third quarter as it marks down the value of its existing Postbank holding.
Ackermann, who previously said the bank would only raise capital for acquisitions, is trying to build up the bank’s so- called stable businesses of retail banking and asset management, and reduce reliance on investment banking, which accounted for 78 percent of pretax profit in the first half.
The retail business, including Postbank, would have more than 10 billion euros of annual revenue and pretax earnings of more than 3 billion euros by 2015-2016, Ackermann said.
Strengthening Equity Capital
“We can expand our strong position in our home market, take a leading position in the European retail banking business and significantly enhance Deutsche Bank’s revenue mix,” Ackermann, 62, said in an e-mailed statement. “Furthermore, with this capital increase we are strengthening the bank’s equity capital in light of expected regulatory changes.”
In the past four years, Deutsche Bank acquired Berliner Bank AG and Nuremberg-based Norisbank AG, as well as ABN Amro Holding NV’s commercial-banking operations in the Netherlands and private wealth manager Sal. Oppenheim Group. The bank has no plan for further acquisitions, Ackermann said today.
Deutsche Bank’s bid for Postbank coincides with a global effort by regulators to write rules that will prevent a repeat of the financial crisis, which caused writedowns and credit losses of almost $1.8 trillion worldwide, according to data compiled by Bloomberg. Deutsche Bank dodged the worst of the credit crunch and eschewed a state bailout.
‘One Fell Swoop’
“Deutsche Bank may think that if they come with one fell swoop the immediate negative effect of dilution will be forgotten over time,” said Matthias Engelmayer, a Frankfurt- based analyst at Independent Research GmbH. “I doubt that most Postbank shareholders will accept the offer. This is a tactical bid and they’ll probably make a better one.”
Postbank’s Tier 1 capital ratio, a measure of financial strength, fell to 6.6 percent under the most severe scenario of the European Union stress tests conducted in July, compared with the 6 percent minimum required to pass. Deutsche Bank’s ratio, by contrast, stood at 9.7 percent under the toughest test.
Germany’s 10 biggest lenders may need about 105 billion euros in fresh capital because of new regulations, the Association of German Banks estimated on Sept. 6.
Regulators from 27 nations announced yesterday that they more than doubled banks’ minimum capital ratios and gave lenders as much as eight years to comply in full.
The Basel Committee on Banking Supervision’s main governing body, meeting in Basel, Switzerland, said banks worldwide need to have common equity equal to at least 4.5 percent of assets, weighted according to their risk profiles. Regulators will introduce a further 2.5 percent buffer. Banks that fail to meet that buffer would be stopped from paying dividends, though not forced to raise cash, the committee said in a statement.
Ackermann said Deutsche Bank will fulfill the Basel requirements by the end of 2013 and won’t need a further capital increase to do so. He said that “all in all” Deutsche bank supports the Basel reforms.
Controlling Stake
Deutsche Bank will likely boost its stake in Postbank to about 60 percent if minority shareholders accept the offer. The German firm agreed to buy a stake in Postbank in September 2008 from Deutsche Post AG and then renegotiated the transaction in January 2009 after the collapse of Lehman Brothers Holdings Inc. roiled financial markets.
In the first step, Deutsche Bank acquired a 22.9 percent stake from Deutsche Post, which it raised to almost 30 percent over time by purchasing additional shares on the market. Deutsche Bank also bought a mandatory exchangeable bond that will be converted into a 27.4 percent Postbank stake in February 2012.
Additionally, Deutsche Bank has an option to buy Deutsche Post’s remaining 12.1 percent stake between three and four years after the deal was completed in February 2009.
Lower Cost
Deutsche Bank also has a so-called “open window” until Feb. 25, 2011, to make an offer for the remaining minority 30.6 percent stake at a minimum price of the three-month volume weighted average price of Postbank’s shares, which is currently 24.50 euros, according to Citigroup analysts.
This is “significantly” below the 45 euros that Deutsche Bank would have to offer subsequently based on the price of the mandatory exchangeable bond, Citigroup Inc. analyst Kinner Lakhani wrote.
“The takeover offer to the shareholders of Postbank allows us to minimize the total costs of the acquisition,” Ackermann said.
Postbank’s supervisory and management boards will comment on the offer after the lender reviews the bid, the bank said in a separate statement.
To contact the reporters on this story: Aaron Kirchfeld in Frankfurt at akirchfeld@bloomberg.net
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