Deutsche Bank’s share price fell today (Friday), as unconfirmed news reports broke that the bank is planning a €9 billion equity issue to support a full acquisition of Deutsche Postbank. Investors’ reaction to the news is strange, given that lack of capital at Deutsche is supposed to be a worry to many.
Deutsche has previously let it be known that it would raise additional capital in the event it moves to a full consolidation of the German post office bank. But the timing on the eve of a crucial meeting to fix proposals for the new Basle III capital regulations raises the question whether Deutsche is also preparing to boost its capital ratios.
Matthew Clark and David Hyman, analysts at KBW, point out: “Such a large amount would allow DBK to fully consummate a merger with Deutsche Postbank (€5 billion capital consumed) and also add one percentage point to the combined capital ratios (or two percentage points if aggressive merger accounting is used). Some economics would be given up by tapping the market preemptively rather than retaining earnings and reducing risk-weighted assets: we initially estimate around 19% dilution before synergies (or 14% after), however believe a persistent ‘bear point’ on Deutsche Bank’s capital would be addressed.”
