DJ Deutsche Bank's Top Shareholders Tell Struggling Lender They Are Concerned
By Jenny Strasburg
Deutsche Bank AG's biggest shareholders, investment vehicles controlled by the Qatari royal family, have recently expressed concern about the threat of legal fines against the lender and whether it is adequately focused on its long-term strategy, according to people familiar with the matter.
The people briefed on communications involving Sheik Hamad bin Jassim al-Thani and his staff said he remains supportive of Chief Executive John Cryan and Deutsche Bank's chairman, Paul Achleitner. At the same time, the sheik lately has sought assurances that the bank is doing everything possible to resolve looming settlements with the U.S. Justice Department while also managing the business, the people said.
Keeping the Qatari investors pleased is a vital mission for Mr. Cryan. The bank has repeatedly said it doesn't need to raise fresh capital. But if its fortunes turn further for the worse, it mightn't have a choice--and the Qataris could be an obvious place to turn for new funds. They have describe themselves as long-term shareholders, but haven't sat idly by during Deutsche Bank's turmoil this year.
One person close to the Qataris and their advisers said they view a potential recapitalization as a possible investment opportunity. They have discussed with other sovereign funds about joining in any investment, people familiar with the matter said.
The Qataris plowed EUR1.75 billion ($1.94 billion) into Deutsche Bank in mid-2014 as part of an EUR8 billion capital increase, paying EUR29.20 a share. More recently, the sheik spent hundreds of millions of dollars more to boost his family's vehicles' stake to near 10%, becoming its top shareholder, Deutsche Bank said earlier this year.
The ride has been downhill: Deutsche Bank shares have fallen 45% this year and are now trading near EUR12. Not accounting for hedges and other factors that people familiar with the Qataris' investment say have softened their losses, the share-price decline alone implies a hit of around EUR1 billion.
The sheik, a former prime minister, controls an investment vehicle through which the Qatari royal family holds some of its Deutsche Bank shares.
The Qataris haven't behaved like activist investors with Deutsche Bank, in that they haven't tried to get involved in operational or management matters, people familiar with their relationship to the bank say. They have reiterated their patience as long-term shareholders, with an interest in even eventually boosting their stake further, the people say.
But they don't plan to do so immediately, some of the people said. First, the Qataris have said they want more clarity.
They are concerned about an erosion of profits and loss of talent in key businesses like investment banking and asset management, the people say. The asset-management business has had three leaders in the past 18 months, and managers have been in the position of reassuring both clients and employees of the bank's commitment to it, people close to it say.
The Qataris have sought assurances that Deutsche Bank executives and its supervisory board are actively weighing all options, including a sale of the asset-management business, should legal fines or other factors press them to take more-dramatic steps than planned earlier.
Mr. Cryan has said asset management is an essential part of the bank.
The Qataris' concerns increased after The Wall Street Journal reported Sept. 15 that the Justice Department suggested Deutsche Bank pay $14 billion to settle longstanding mortgage-securities cases, the people said. That opening bid from the U.S. government, which Deutsche Bank confirmed, is widely seen by investors and lawyers--and the bank itself--as much higher than what Deutsche Bank ultimately will end up paying.
Settlement talks are continuing, people familiar with the matter said.
Still, the disclosure about the Justice Department's initial proposal has crystallized deeper concerns about the German bank. Investors and analysts have fretted over its ability to weather big legal fines considering its already-thin capital cushion, and bolster profits in its shrinking investment-bank and trading operations.
Bankers and others who have spoken with existing and potential investors, or been briefed on discussions with them, say one concern is that most of Deutsche Bank's management board lacks experience running the bank. Only one of its 11 members belonged to the board before January 2015. Five joined this year.
One banker who has talked with potential investors said the downside of selling asset management--including its reliability as a stable source of profits--would be offset by the improvement in the bank's capital position. The person said more resources could then be invested in global transaction banking, a workhorse part of the investment bank that some investors feel could be stronger, along with Deutsche Bank's broader global corporate-finance business.
Eyk Henning contributed to this article.