Deutsche Bank AG (NYSE:DB) 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.
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 (NYSE:BCS) 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 dilute due to massive share issuance.