Deutsche under pressure to raise capital
Deutsche Bank is facing pressure from investors to raise capital amid fears the bank is still not robust enough to cope with a tougher regulatory environment and a slump in global debt markets. Insiders at Germany’s largest lender are understood to accept as a real threat that the European regulators will direct them to raise fresh equity after eurozone-wide bank health checks later this year. Several peers including Barclays and Credit Suisse have in the past two years been compelled by local regulators to accelerate plans to raise capital. Deutsche, which declined to comment, has not seen similar demands but is expected to face a stricter oversight regime when the European Central Bank takes over in November. Several large investors told the Financial Times they were "unhappy" with top management over their slow response to issues ranging from capital weakness to legal investigations. Some of them are pushing for executives to raise equity, not least because they fear an aggressive plan to reduce the bank’s outsized debt-load is severely damaging its fixed income trading business. "It is very difficult for them to say we got it wrong. But I clearly think they need to raise capital as they have already harmed their business by not doing it," said a top 20 investor in the bank. Anshu Jain, co-chief executive, is trying to build up capital by reducing assets and retaining earnings. A €3bn equity rise 12 months ago had prompted him to declare the bank’s capital "hunger march" over, but since then it has been hit by fresh rules on how much debt a bank may have compared with its equity capital. Deutsche’s core tier one ratio – a crucial gauge of balance sheet strength – stood at 9.7 per cent at the end of 2013, the third worst among 12 of the world’s largest investment banks, according to Kian Abouhossein, a JPMorgan analyst. David Moss, head of European equities at F&C Asset Management, said: "They have improved their capital position dramatically, but for a bank with the size of their balance sheet and their business mix it still looks to be on the low side." Deutsche is targeting a more than 10 per cent ratio in a year’s time but has already warned it could fluctuate before that. Analysts at JPMorgan and UBS project it to fall to 9.2 and 9.1 per cent respectively this year due to regulatory adjustments. "I’m definitely not happy with this capital ratio," said a top 10 investor. Investors expect to see fresh evidence from first-quarter results next week that Deutsche is in danger of losing its crown in fixed income, a market that has been hit by tougher regulatory rules and investors’ reticence to trade. The bank’s share price has vastly underperformed its sector in the past 12 months. "I don’t think there is a happy shareholder in Deutsche Bank at this point in time, just because of the share price," said Vincent Vinatier, head of research for European equities at Axa Framlington. He was more sceptical about the need for a rights issue. "If you look at the amount of work done on cutting costs and accruing capital, it’s all happening, it’s just not happening quickly enough for the market to be happy with."