Deutsche Bank AGDB may record further charges on its retail unit - Deutsche Postbank AG - which it plans to sell in an effort to boost capital levels.
According to a Reuters release citing people familiar with the matter, the German banking giant may slash the book value by a third to €2.8 billion ($3.15 billion) as the current book value of €4.5 billion looks difficult to achieve either through an initial public offering or a divestiture.
Any potential write downs on Postbank will be made when the unit nears sale, which would however, depend on the market at that time. Deutsche Bank mentioned "It is too early to speculate about potential outcomes."
Notably, Deutsche Bank's third-quarter 2015 results, included €3.6 billion impairment of goodwill and intangibles in its Private & Business Clients division, in order to reflect expectations related to disposal of Postbank and higher regulatory capital requirements.
In a strategic move to reduce dependency on investment banking and generate revenues from retail banking, in 2008 Deutsche Bank acquired a stake in Postbank, which gradually increased to 96.8% as of September 2015. Headquartered in Bonn, Postbank with 15,000 employees has about 14 million customers and €152 billion of assets. During the nine month ended Sep 30, 2015, the unit reported a net profit of €383 million.
Separately, Deutsche Bank is contemplating buying back certain debts in an effort to ease investor concerns over its securities. According to a release by the Financial Times , the buyback plan focuses on senior bonds, of which it has about €50 billion in issue as of September 2015. However, the proposed move does not include contingent convertible bonds (cocos). Notably, the bank's value of its senior bonds has witnessed a decline as well as sharp plunge in its share price in recent weeks.
Though on Wednesday, Deutsche Bank rallied more that 5% on the NYSE, year to date it has lost more than 30% to $16.21.
Amid several macro headwinds, banks in Europe face stringent regulatory pressure to maintain a healthy capital position in order to resist another financial meltdown. Therefore, such capital raising initiatives should help Deutsche Bank meet regulatory requirements and shrink balance sheet, besides improving its competitiveness and strengthening core businesses.
Deutsche Bank's Common Equity Tier 1 (CET1) capital ratio stood at 11.1% as of Dec 31, 2015 compared with 11.7% as of Dec 31, 2014. Leverage ratio, on an adjusted fully loaded basis, was 3.5% as of Dec 31, 2015, same as the prior-year quarter. Risk-weighted assets amounted to €397 billion ($433.7 billion) as of Dec 31, 2015 compared with €394 billion ($478.9 billion) as of Dec 31, 2014.
Deutsche Bank currently carries Zacks Rank #5 (Strong Sell). Some better-ranked stocks in the finance space include PrivateBancorp, Inc. PVTB , Erste Group Bank AG EBKDY and Nordea Bank AB (publ) NRBAY . While PrivateBancorp sports a Zacks Rank #1 (Strong buy), both Erste Group and Nordea carry a Zacks Rank #2 (Buy).
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