Deutsche Bank AG agreed to sell its 20 percent stake in Huaxia Bank Co (華夏銀行) to PICC Property and Casualty Co (中國人民財產保險) as co-chief executive John Cryan advances plans to narrow the German company’s focus and raise capital buffers.
The sale is to generate as much as 25.7 billion yuan (US$4 billion), Frankfurt-based Deutsche Bank said in a statement on Monday. The deal would have added 30 to 40 basis points to Deutsche Bank’s 11.5 percent common equity tier 1 ratio, using Sept. 30 as a basis, the company said.
Cryan, who took over from Anshu Jain in July, is selling assets and reducing bonuses to help raise the company’s financial strength without tapping shareholders for funds.
Deutsche Bank follows competitors Banco Bilbao Vizcaya Argentaria SA, Goldman Sachs Group Inc and Bank of America Corp in selling holdings in Chinese financial institutions as new international rules make it expensive to hold minority stakes in lenders.
“It’s good that this is done, but it’s a small step in a long journey and this isn’t going to propel them forward,” said Hamburger Sparkasse analyst Christian Hamann, who has a neutral recommendation on Deutsche Bank shares. “It was clear they couldn’t do much with a minority stake. The price suggests they won’t have to take any more losses on the stake.”
Deutsche Bank shares fell 0.5 percent on Monday in Frankfurt to 22.33 euros. Deutsche Bank is among the biggest losers in Germany’s DAX this year, falling 11 percent compared with an 8.7 percent increase in the benchmark index.
In Shanghai trading yesterday, Huaxia Bank shares rose 3 percent as of 10:29am, the most in almost a week. PICC shares declined 1.1 percent in Hong Kong.
After the deal, the insurance company is to become Beijing-based Huaxia Bank’s second-largest shareholder after the government-backed Shougang Group (首鋼).
The transaction would probably become a “catalyst” for a rally in Huaxia Bank’s shares, Huatai Securities Co (華泰證券) Shenzhen-based analyst Luo Yi (羅毅) wrote in a client note yesterday.
Chinese insurers have been buying stakes in banks in the past year to boost the cross-selling of products and their customer bases, the analyst said.
Deutsche Bank wrote down the value of its Huaxia stake by 649 million euros (US$712 million) in the three months through September to account for a possible sale of the holding, as well as “general market pressure in China,” according to its filings.
That contributed to a record 6 billion euro loss in the quarter as Cryan wrote down the value of businesses, while setting aside funds for potential fines and legal settlements, the filings showed.
The German lender, which first established a presence in China in 1872, bought a stake in Huaxia in 2006, before increasing the holding in 2008 and again in 2011 as part of former chief executive Josef Ackermann’s plan to expand in corporate and consumer banking, its Web site showed.
“China remains a key growth market for us,” Cryan said in the statement.
While Deutsche Bank has been “pleased” with Huaxia Bank’s development, “now is the right time for us to sell this investment,” he added.
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