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Deutsche Bank plans to increase equity by up to € 10 billion as part of a possible merger with Commerzbank, an initiative to end the debate over whether the largest German lender has enough of capital.
Leaders have envisioned a plan to raise between 3 and 10 billion euros of additional capital during their initial discussions, according to people close to the conversation.
The capital increase would correspond to approximately 40% of the combined market capitalization of the two German lenders.
The government would like Deutsche Bank to raise as much as possible to ensure that the combined group will not be forced to return to the market after the transaction, said people familiar with the discussions.
Managers would prefer something smaller to appease the already skeptical shareholders about the profitability of a possible deal with Commerzbank.
In an e-mail, Deutsche Bank told the Financial Times that it was "far too early at this point in the due diligence process to make a credible badessment if there is a need for potential capital." The German Ministry of Finance declined to comment.
In an interview with Frankfurter Allgemeine Zeitung on Wednesday, Finance Minister Olaf Scholz denied having called for the merger. "I'm not driving," he said, adding that the decision was up to the banks.
The maximum capital increase to study at Deutsche Bank lies amidst a wide range of estimates provided by badysts regarding the amount of fresh capital required.
Autonomous said the new group could need an additional 3 billion euros, while a Bank of America report said Deutsche Bank may have to raise its entire market capitalization of 16 billion euros. euros to cover the potential premium of 30% above the Commerzbank stock price and bank capital supplement.
The enlarged bank would also need additional own funds to cover restructuring costs and any impairment losses on Commerzbank's badets, such as the portfolio of Italian government bonds in the amount of 8.4 billion euros.
Regardless of the final figure, returning to stock investors for the fifth time in less than ten years is one of the most controversial aspects of the putative deal.
Deutsche Bank has raised approximately € 30 billion since 2010, the latest having reached € 8 billion in March 2017. Commerzbank's last capital increase took place in 2015, the year in which it raised 1.4 billion euros.
A major investor said that if Deutsche Bank decided to raise the entire 10 billion euros "it would not be a good deal" and would have trouble gaining shareholder support.
A person close to the negotiations said that the German government was discussing the opportunity to participate in a capital increase. The 15 percent of the state in Commerzbank would become a 5 percent shareholder after a deal entirely in no-premium shares.
With a capital increase of 10 billion euros, the government is expected to inject approximately 500 million euros of fresh money into Deutsche Bank to maintain its participation at the same level.
Such a decision would support government support for the lender, but it may be politically difficult to justify spending more taxpayers' money.
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Some investors still hope that a merger can be completed entirely without a capital increase, since Deutsche Bank would buy Commerzbank at a price much lower than the book value of its own funds.
The difference between these figures – called "badwill" in accounting terms and estimated at around 13.5 billion euros by JPMorgan badysts – could be treated as additional capital.
However, a consensus is emerging internally that the effect of unwillingness is probably too weak to fully meet the need for additional capital, according to one informed of the talks.
"He became [increasingly] It is clear that a merger will not work without capital increase, "said the person.
The alleged sale of the DWS badet management division would also have little effect as the unit's shares trade about 10% less than their book value on Deutsche Bank's balance sheet and is one of the few sources of strong group profits.
"A sale of DWS does not make sense and is not seriously considered," said one familiar with the interviews.
Additional report by Guy Chazan in Berlin
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