Deutsche Bank AG is holding informal talks with securities firms to explore options including raising capital should mounting legal bills require it, according to people familiar with the discussions.
Senior advisers at top Wall Street firms are speaking to representatives of the German lender about ideas including a share sale and asset disposals, said the people, who asked not to be identified because the plans are private.
A spokeswoman for Deutsche Bank declined to comment.
The banks are offering to help underwrite a stock sale to raise about 5 billion euros (US$5.6 billion) should the bank need it, the people said. That is about the maximum amount in discounted shares Deutsche Bank can sell without needing shareholder approval, if the firms decide to raise capital, the people said.
The firm could also go to shareholders to request approval for more funds.
Deutsche Bank is deliberating whether to sell the shares once it reaches a settlement with the US Department of Justice on a probe tied to residential mortgage-backed securities, the people said. No final decisions have been made and the bank could decide against a capital increase, they said.
The result will largely depend on the size of the fine, which Bloomberg Intelligence estimates may range from US$4 billion to US$8 billion based on earlier settlements, the people said.
The bank has also informally spoken to potential anchor investors, including new and existing shareholders, to back a possible capital increase, the people said.
Some of Germany’s biggest publicly traded companies are prepared to buy shares in Deutsche Bank to prop up the lender in the event of a potentially crippling legal fine in the US, German newspaper Handelsblatt reported on Thursday. Some of the bank’s biggest shareholders include the Qatari royal family, BlackRock Inc and Norges Bank, according to data compiled by Bloomberg.
Investors and bankers have also called on Deutsche Bank to provide clarity on its business strategy. The debate revolves around whether the firm should retain its status as a universal financier — that provides investment banking, asset and wealth management and retail while shrinking fixed income and cutting costs to muddle through — or if it should retreat to its roots of being a German and European corporate lender and retail bank, jettisoning the investment bank.
Deutsche Bank could also revisit selling its Deutsche Postbank unit or parts or all of its asset management division to raise cash, according to people familiar with the matter.
The bank is more likely to tap existing shareholders for funds to help weather mounting legal costs rather than selling asset management or merging with Commerzbank AG, Autonomous Research LLP said in a note on Monday.
Assuming litigation charges come to US$5.6 billion from the Justice Department and US$2.5 billion from the money-laundering probe, the fees would spark a capital shortfall of as much as 9.5 billion euros, Autonomous CEO Stuart Graham said in a note.
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