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Deutsche Bank Said to Review Options This Month for Capital (2)

(Bloomberg) -- Deutsche Bank AG plans to review strategic options over coming weeks that include a capital increase and the partial sale of its asset-management business, according to people with knowledge of the plans.

The supervisory board is scheduled to meet for two days starting March 16 to discuss potential measures, said the three people, who asked not to be identified because they weren’t authorized to speak publicly. A stock sale would help Germany’s biggest bank replenish capital buffers that may come under pressure if it reintegrates its Postbank subsidiary, the people said.

Deutsche Bank has almost doubled in market value since Sept. 26, reflecting relief over its U.S. mortgage securities settlement and the brighter outlook for banks following Donald Trump’s election. Selling Postbank, which employs 18,000, had been a cornerstone of Chief Executive Officer John Cryan’s strategy to boost capital and profitability, but the bank has has been unable to find a buyer.

“A capital increase is probably the best option given the alternatives, everything else would cut into real business,” said Michael Huenseler, an investor at Assenagon Asset Management, which has stock in Deutsche Bank. “But it will be an enormous dilution for shareholders at the current price-book ratio.”

No decision has been made, including on whether Deutsche Bank will sell its own stock or hold an initial public offering of the asset management unit, said the people. A majority of the supervisory board favors reintegrating Postbank, accompanied by a capital increase, one person said.

A spokeswoman for Deutsche Bank declined to comment.

Deutsche Bank shares fell as much as 3.6 percent and were 2.2 percent lower at 18.97 euros as of 4:33 p.m. in Frankfurt. The stock trades at about half the tangible book value, below European peers including UBS Group AG, which trades at 1.3 times book, and France’s BNP Paribas SA at 0.9 times book.

A fund management spinoff may be attractive to investors who have watched the success of Amundi SA, France’s largest asset manager, since controlling shareholder Credit Agricole SA sold shares to the public. The stock is up more than 20 percent since its IPO in November 2015, and the company posted its highest quarterly inflows in two years in the fourth quarter.

Deutsche Bank’s asset management had seen six consecutive quarters of net money outflows by the end of last year. Division head Nicolas Moreau, who joined the business in October, has pledged to reverse the trend.

Capital Relief

Chief Financial Officer Marcus Schenck last month said the lender would only sell Postbank if a deal provided “meaningful capital relief” to Deutsche Bank.

Deutsche Bank’s management board earlier planned to wait for the completion of new banking standards that could force the bank to hold yet more capital, including for Postbank, before finalizing fresh measures. After failing to deliver a deal in early January, the Basel Committee of global banking supervisors once again left the table this week without an agreement, fueling uncertainty over the timing.

At 11.9 percent at the end of 2016, the bank’s common equity Tier 1 ratio is still 60 basis points shy of its end-2018 target. With revenue under pressure from low interest rates, Deutsche Bank is also trying to build capital up organically by improving profitability. The lender has withdrawn from several countries and it recently announced that it will drastically cut bonuses for about a quarter of its staff.

Schenck has said new rules could add 100 billion euros ($106 billion) to its risk-weighted assets, which amounted to 358 billion euros at the end of 2016. The increase would probably come over seven to 10 years, he said.

Deutsche Bank acquired Postbank seven years ago under then-CEO Josef Ackermann, hoping the move would help it reduce its reliance on investment banking. The company wasn’t able to fully tap synergies with the new unit and limits on leverage made its mortgage business less attractive, according to the bank. Labor union Verdi said in February that it opposes reintegrating Postbank into Deutsche Bank because it would put jobs at risk.

Doubts about Deutsche Bank’s financial strength intensified last year after the U.S. Justice Department in September demanded $14 billion to end an inquiry into mortgage securities that fueled the 2008 financial crisis. Investors were relieved when the final settlement in December came at about half that amount.

(Adds investor comments in fourth graph, asset management detail in ninth.)

--With assistance from Aaron Kirchfeld and Nicholas Comfort

To contact the reporters on this story: Steven Arons in Frankfurt at sarons@bloomberg.net, Jan-Henrik Foerster in Zurich at jforster20@bloomberg.net, Manuel Baigorri in London at mbaigorri@bloomberg.net.

To contact the editors responsible for this story: Elisa Martinuzzi at emartinuzzi@bloomberg.net, Cindy Roberts, Ross Larsen

©2017 Bloomberg L.P.