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A troubled bank hopes to turn the page
THREE times since the financial crisis, Deutsche Bank s bosses have turned to
its shareholders for cash: 10.2bn ($13.6bn) in 2010, 3bn in 2013 and 8.5bn
in 2014. Since becoming chief executive in 2015, John Cryan has had no plans to
ask for more. Deutsche still needed to thicken its equity cushion, but
disposals, cost cuts and earnings (if any: it has made losses for the past two
years) would provide the stuffing.
Well, plans change. On March 5th Mr Cryan announced an 8bn rights issue. Some
comfort for investors: the price, 11.65 a share, is 39% below the previous
close; and Mr Cryan, who had suspended the dividend, promises a return to
competitive payouts next year. In another reversal, Deutsche will keep rather
than sell Postbank, a mass-market retail business that was once part of the
post office. Deutsche has owned it since 2010.
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Postbank and the posher blue Deutsche Bank brand will be more closely
integrated notably, sharing computer systems. Mr Cryan is also selling a slice
of Deutsche s asset-management division and some lesser assets. And he is
reorganising its corporate and investment bank to concentrate on serving
multinational companies, taking charge of the American business himself.
The shifts on Postbank and the share issue are two sides of a coin. Selling
Postbank had been part of Deutsche s plan to raise its ratio of equity to
risk-weighted assets an important gauge of resilience above 12.5% by 2018. With
the capital increase, Deutsche says, the ratio would have been 14.1% at the end
of last year, rather than 11.9%. It should stay comfortably above 13%.
Mr Cryan may be making virtue out of necessity: he was struggling to get the
price he wanted for Postbank. However, Deutsche says altered circumstances have
made Postbank a better prospect.
Supervisors demand a higher leverage ratio (of equity to total liabilities) of
Deutsche than of the many smaller institutions, chiefly municipally owned
savings banks or co-operatives, where most Germans stow their cash. But this
has turned out to be lower than first expected so that retaining Postbank
requires less equity. Mr Cryan also reckons that the miserable,
ultra-low-interest-rate economics of German retail banking are improving and
that there is strength in scale in a land of more than 1,600 lenders. Postbank
and the blue brand each have around 5% of retail deposits.
A deal in January with America s Department of Justice has also made it easier
to tap shareholders. In September the DoJ demanded $14bn to settle claims that
Deutsche mis-sold residential mortgage-backed securities in its swashbuckling
pre-crisis days, and sent the shares plummeting. The eventual bill, $7.2bn,
less than half of it in cash, came as a relief.
Though Deutsche still claims global corporate-and investment-banking ambitions
, feeding the domestic roots looks wise: America s big banks show that
domestic strength begets strength abroad. But there is another lesson. Like
many European lenders, Deutsche has taken too long to choose a course.
Meanwhile, the Americans have marched into the distance.