Deutsche Bank has talked with investment banks to gauge the appetite for a stock sale to raise as much as 9 billion euros, or $11.4 billion, according to a report citing “three people with knowledge of the discussions.”
The reason for the capital raising is unclear. It may be that Deutsche Bank is seeking new capital in advance of the Basel III capital requirements, which will raise the required level of capital banks must hold.
Bloomberg points to another possibility: funding an acquisition of Deutsche Postbank AG. Deutsche Bank already has a 30% stake in Postbank, and reportedly has an option to increase its stage. In June, Deutsche Bank’s Chief Risk Officer reportedly told investors that Deutsche would only raise capital for acquisitions.
Bloomberg’s sources say the proceeds of a stock sale “may be used” for both the acquisition and to meet Basel III requirements.
Banks typically loathe raising capital through share sales because the move is often viewed as a sign of weakness or financial distress. But some capital raising by European banks will be inevitable because so many European banks have far less capital than the anticipated Basel III rules will require. Bloomberg points out that the Association of German Banks has estimated that the country’s 10 biggest lenders may need as much as 105 billion euros in fresh capital.
That enormous sum may explain why Deutsche Bank is making this move now, despite the fact that banks will have several years before they are held to the new capital standards. By getting out ahead of other banks, Deutsche Bank may hope to avoid a potential squeeze that could result from so much banking share inventory coming onto the market.