Deutsche bank has been caught in at least three recent lies. It said it
was not talking with the German government about a bailout, but it was; It
said it would not need to raise capital but it does; It said it could afford
to pay the department of Justice fine of $14 billion but it cannot.
This weekend, there is still no agreement with the US department of
justice over reducing the fine, but rumors have circulated that Qatar’s royal
family is considering increasing its stake in Deutsche Bank to as much as 25
percent. There are also rumors Deutsche Bank will raise capital by selling
shares.
Bloomberg reports Deutsche Bank’s Cryan Doesn’t Reach Accord With U.S.
Deutsche Bank AG Chief Executive Officer John Cryan failed to reach an
agreement with the U.S. Justice Department to resolve a years-long
investigation into its mortgage-bond dealings during a meeting in Washington
Friday, Germany’s Bild newspaper reported.
The meeting was meant to negotiate the multi-billion-dollar settlement the
bank will have to pay to resolve alleged misconduct arising from its dealings
in residential-mortgage backed securities that led to the 2008 financial
crisis, according to a Bild am Sonntag report.
The German lender is still considering seeking damages against Anshu Jain
and Josef Ackermann, who are both former CEOs of the bank, the newspaper
reported. Bild said the bank froze part of the millions in bonus payments to
Jain and other former top managers.
Concerns about Deutsche Bank’s ability to pay the $14 billion opening
settlement bid from the Justice Department sent the lender’s stock to a
record low last month. The bank, which set aside 5.5 billion euros ($6.2
billion) for litigation at the end of June, may face additional penalties to
wrap up other outstanding investigations, including one into a
money-laundering probe tied to its Russia operations. Analysts at Barclays
Plc speculate that could cost the bank as much as 2 billion euros ($2.2
billion).
Cryan, a Briton who speaks fluent German, has sought for the last three
weeks to reassure investors that Deutsche Bank can weather the formidable
obstacles to its financial health. The bank is holding informal talks with
Wall Street firms about options to deal with legal costs, including a stock
sale that could raise 5 billion euros ($5.6 billion), people with knowledge
of the matter said this week.
Qatar’s royal family is also considering increasing its stake in Deutsche
Bank
to as much as 25 percent, according to people with knowledge of the matter.
Dillutive Stock Sale Coming Up?
Deutsche Bank’s Market cap is about $19 billion. To raise $5 billion at
current prices, shareholder dilution would be roughly 26 percent.
Share price is current $13.67. A 26% haircut would send share prices close
to $10. But is $5 billion in capital even enough?
I rather doubt it. And raising $10 billion would mean 52% more shares.
In 2014,the bank could have raised funds at $51. In 2015 it could have
raised money at $35. Now it has to raise money at a share price of $13.64.
Share price actually could rise on a stock sale simply on the fact the
bank is doing something to raise capital, but that will not dilution due to
massive share issuance.
Mike “Mish” Shedlock
