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March 06, 2017 at 07:59 AM
Deutsche Bank AG Chief Executive Officer John Cryan needs to convince investors he’s finally on the right track after tearing up his own turnaround plan just 17 months into the revamp.
Reaction so far to his about-face — which includes an $8.5 billion rights offering, selling part of the asset-management business and reintegrating the consumer-banking unit — has been mixed. Cryan told Bloomberg TV on Monday that one key stakeholder had signaled willingness to participate in the share sale. Another large shareholder is undecided about the capital increase and will need convincing, a person familiar with the matter said.
The shares dropped on Monday the most in more than five months, following the announcement that Deutsche Bank will tap investors for the fourth capital infusion since 2010. The lender, which has posted more than 8 billion euros ($8.5 billion) of net losses in the past two years, has almost doubled in market value from a September low, making a share sale more palatable. Cryan is trying to sweeten the offer with the promise of renewed dividends and a return to profitability.
“We want to move back into modest growth mode, controlled growth,” Cryan said in the interview Monday. “The operating environment in the U.S. but also increasingly in the euro zone and especially in Germany looks strong. And so I’m reasonably confident about the future.”
Deutsche Bank executives on Monday afternoon faced questions during a call with analysts about what was behind the change in Postbank strategy and how the business environment may be changing in Germany. Chief Financial Officer Marcus Schenck, who was named Sunday as one of two deputy CEOs, told analysts that the lender had lost 1 billion euros in revenue last year as a result of the negative “noise” surrounding the bank.
Deutsche Bank shares extended their decline during the call, dropping as much as 7.6 percent to 17.69 euros and trading 7.1 percent lower as of 4:12 p.m. in Frankfurt. Before Monday, the shares had rallied 44 percent in the past six months.
The bank’s additional Tier 1 bonds jumped after the lender announced the share sale on Sunday and said it will pay voluntary annual coupons due next month. Its 1.75 billion euros of AT1 notes, the first bonds to take losses in a crisis, rose 3 cents on Monday to 97 cents on the euro, according to data compiled by Bloomberg. The bonds fell as low as 70 cents last year amid investor concern that falling earnings and multi-billion-dollar settlements for historic misconduct would cause the bank to skip interest payments.
The top shareholder expressed concern that the latest announcement marks yet another strategy reversal that is difficult to fully understand, said the person, who spoke on condition of anonymity. The lender has under delivered on previous strategic changes and there’s a risk that the two new deputy CEOs named on Sunday will end up turning Cryan into a lame duck, said the person.
Cryan told Bloomberg on Monday that the deputies were installed at his request as the company focuses more on the German market with the reintegration of Postbank. The decision reflects a strong performance by the unit and a changed environment for banks, he said. Yet the developments also underscore how, almost two years after he took over, Deutsche Bank has been unable to plot a course to a more profitable future while trying to eliminate 9,000 jobs.
Read Bloomberg Intelligence analysis on the lender’s overhaul
