A Deutsche Bank plan to raise nearly $11 billion in new capital drew criticism on Wall Street, bedeviling the German bank's shares in the U.S. and Europe and prompting at least one prominent analyst to downgrade the stock.
Deutsche, whose capital-raising plans emerged on Sunday, announced that it would issue hundreds of millions of new shares in a so-called "rights offering" to existing shareholders and sell a smaller swath of shares to the royal family of Qatar. The new money will improve Deutsche's regulatory capital ratios, the bank said, and will be used, among other things, to make new hires in the U.S. wealth-management business and to help digitize its operations in Europe.
In a conference call Monday morning, Deutsche co-chief executive Anshu Jain reaffirmed his bank's commitment to the fixed-income business, which was a revenue disappointment for many banks this past quarter, but added that the market could remain under pressure.
Jain's rhetoric and the bank's latest move are a departure from the current industry playbook, where some competitors are selling under-performing or non-core assets in their fixed-income divisions, such as commodities, and looking for new ways to work with their existing capital. But Deutsche's steps now raise questions about whether other banks will need to follow suit as they prepare for enhanced bank-capital requirements.
Some analysts immediately panned Deutsche's capital-raising efforts as misguided or even inadequate. Bank of America, for instance, downgraded the stock from to an "under-perform," arguing that "with near term capital pressures building and in our view the threat of franchise damage high, DB has chosen to raise" capital, and that while their capital plans and emphasis on fixed income "may be the right answer longer term," the bank also "risks being structurally valued at a discount to book," or the value of the assets on its balance sheet.
Analysts at Societe Generale, who have placed a sell rating on Deutsche, concurred, arguing that Deutsche needed another $6.8 billion of capital—on top of the $11 billion it plans to raise—to bring its leverage ratios in line with even its more weakly-capitalized peers. In general, they and others argued, the German bank's leaders have veered off in the wrong strategic direction, as results in traditional profit centers, like fixed income and advisory services, wither.
"We simply see no future for the investment banking unit," wrote the research team at Alpha Value, an independent stock-research firm in Paris.