After two years of losses, Deutsche Bank AG is thinking of selling stock to raise capital, according to what Marcus Schenck, CFO of the bank said on Thursday. This option has been taken by the lender to avoid damaging the shareholders.
Schenck, in his interview with Bloomberg TV, said that they’d never rule out instruments. They’d like to generate profit organically and if required, they could deploy the tool to raise equity.
This clearly suggests that this Frankfurt-based lender is thinking of tapping shareholders because misconduct fines are weighing on their earnings. There was a constant loss of money in the previous two years and their stock fell on the maximum this Thursday as the fourth quarter results just missed the estimates of analysts, making clients worry about the bank’s financial strength who are now thinking of stepping back from the trading schemes of the bank.
The net loss narrowed down by Deutsche Bank on Thursday was about $2.04 billion in three months that quarter as opposed to 2.12 billion Euros the previous year. The analysts had expectations of a shortfall of not more than 1.32 billion Euros.
John Cryan, the CEO, previously mentioned that selling shares won’t correct the problem of generation of poor organic capital, while some analysts suggest that the bank is only left with this option.
A raise was seen in the common equity Tier1 Ratio between quarters from 11.1% to 11.9%, which is supposedly one of the key measures of Capital Strength. The bank believes that they will lift the ratio by the end of the year 2018 to at least 12.5%.
Schenck added that this ratio might fall in the first quarter of the fiscal year as the lender does business in its trading unit, for example. Schenck added that the bank might face litigation costs this year. About 100 billion Euros might be added to their risk weighted assets according to the Basel II Capital standards. This total was 358 billion Euros in December last year.
A report by a Citigroup analyst said they would welcome improvement in capital position, but they wonder whether this would come at the cost of profitability of their core franchise.
At 4:50 PM in Frankfurt, the stock fell 6 more percent, making it 18.03 Euros after falling to about 7.1 Percent. While settling some legal matters, the US presidential election doubled the shares from the low in September and due to this there were speculations that the regulation of the banks has been weakened.
Let’s hope Deutsche Bank pulls out of this tough situation and we get the trustworthy lender back.