Deutsche Bank AG became the largest lender in at least four years to feel compelled to reassure investors and employees that it has enough cash to pay its debts.
Germany’s biggest bank said in a statement that it has more-than-sufficient means to pay coupons on its riskiest debt both this year and in 2017. Deutsche Bank also published a note to employees from Chief Financial Officer Marcus Schenck that said the firm’s “capital and risk position remains strong,” Bloomberg reported.
The cost of protecting Deutsche Bank’s debt against default has more than doubled this year, while its stock trades at about one-third of the company’s liquidation value. Co-Chief Executive Officer John Cryan has failed to generate confidence in his plan to cut costs and build capital as volatile markets threaten revenue and outstanding regulatory probes raise the specter of continued legal charges.
Deutsche Bank and European rivals including Credit Suisse Group AG and Barclays Plc are getting walloped by a global market rout just as they embark on ambitious overhauls of their securities units. The selloff, as investors seek safety from China’s slowdown and falling oil prices, is complicating that task by reducing revenue from investment banking and making parts of the business more expensive to exit, hampering efforts to ultimately plow more earnings into capital.
Bad Year
January marked the worst start to a year for underwriting bonds in western Europe since 2008, while high-yield bond fees slumped 78% from last year, data compiled by Freeman & Co. show. Stock sales in Europe, the Middle East and Africa dropped 60% so far this year, data compiled by Bloomberg show. Shares of the three investment banks have tumbled at least 25% since that month began, putting them in the bottom half of the 39-company Bloomberg Europe Banks and Financial Services Index.
“It’s going to be a really bad year,” said Lutz Roehmeyer, who helps manage about €11 billion ($12.3 billion) at Landesbank Berlin Investment GmbH, in Berlin, which holds shares of lenders including Deutsche Bank. European banks “can essentially scrap any goals they had set themselves for this year.”
Deutsche Bank said Monday that it still has room to pay about €1 billion in 2016, enough to cover about €350 million in Additional Tier 1 coupons due in April. The estimated payment capacity for 2017 is about €4.3 billion, boosted in part by proceeds from the announced sale of a stake in Huaxia Bank Co., the Frankfurt-based lender said. The 2017 estimate is before any effect from 2016 profit or losses.
Deutsche Bank shares in the US climbed almost 2% after that announcement, finishing the day with a decline of 8%. The stock dropped 9.5% on Monday in Germany, the biggest decline in almost seven years, reaching its lowest price since at least 1992.
