UPDATE 2-Deutsche Bank shares jump after 3 bln euro stock issue

Tue Apr 30, 2013 12:32pm EDT

* Bank places 90 million shares at 32.90 euros each

* Says allows it to make acquisitions and win new business

* Could also open door to higher dividend payments

* With other measures, raises core Tier One ratio to 9.5 pct

* Shares up 6 pct, hit highest in two months

By Edward Taylor and Sinead Cruise

FRANKFURT/LONDON, April 30 (Reuters) - Deutsche Bank AG completed a 2.96 billion euros ($3.9 billion) share issue on Tuesday, quashing lingering worries about its finances and showing renewed appetite among investors for European bank stocks.

Its shares jumped more than 6 percent to their highest in some two months.

The capital increase by Germany's biggest lender bolsters its balance sheet and puts it comfortably in line to meet bank safety rules ahead of a 2019 deadline. It also means it can forge ahead with acquisitions and win new business as rivals retrench, co-Chief Executive Anshu Jain said.

Tapping shareholders for funds allows banks to plug regulatory capital demands and use their profits to invest in expansion and for higher dividend payouts, rather than spending months diverting the money for regulatory purposes.

The fact that Deutsche Bank - which placed 90 million shares at 32.90 euros each - managed to sell its shares without a hefty discount signalled fresh demand for financial markets stocks, towards which investors had long been wary.

"For Deutsche, there were clear business reasons why they managed to raise capital so well. This is a global investment bank which wants to remain a global investment bank," said Jaime Ramos Martin, portfolio manager at Standard Life Investments.

"They needed more capital to support those ambitions because the U.S. regulator wanted more capital and European regulators were worried that this left domestic operations looking weak. Now they can take on more risk," he said.

Deutsche is among a slew of European banks raising capital, including Russia's second-largest bank VTB and Germany's Commerzbank, as well as Greek and Spanish banks.

Jain said pressure to narrow the gap with peers inspired the move. "We were asked to raise capital by virtually a unanimous opinion across investors and analysts in June, September and December," Jain told analysts on a conference call. "Resolving the capital issue had to be our top priority."

Deutsche Bank shares closed up 6.1 percent at 34.91 euros, helping drag the European sector up 0.5 percent.


Jain had said in January the question of whether Germany's lender needed a capital increase was driven by uncertainty over the likely burden of future regulation.

Since then the U.S. Federal Reserve Board has renewed calls for foreign banks operating in the United States to hold as much capital as their U.S. counterparts, regardless of how well their overseas parent companies are funded.

"Everybody knew they needed to raise some capital and nobody wanted to take a position until they completed their capital raising," Olivier Lefèvre, a Paris-based European equities portfolio manager at Natixis Asset Management, told Reuters.

"With this capital increase, they did a great job, they will close the discount on the valuation and keep in touch with their Swiss competitors. The bank seems to be on the road now."

The share sale combined with further measures to sell hybrid debt in the next 12 months will bring Deutsche Bank's core Tier One capital ratio to approximately 9.5 percent from 8.8 percent at the end of March.

By comparison, rival Barclays has a core Tier One ratio of 8.4 percent, Credit Suisse 8.6 percent, JP Morgan 8.9 percent and Goldman Sachs 9 percent.

Britain's banks have also been told by their regulator they must plug a 25 billion pound hole in their finances by the end of the year, although the watchdog has said actions already taken should cover half the shortfall.

Yet UK banks are unlikely to go directly to shareholders for extra funds. State-backed Royal Bank of Scotland and Lloyds Banking Group for instance would want to avoid such a scenario because it would require British taxpayers to foot at least some of the bill.

Barclays has also pursued alternative means to bolster its capital strength, issuing debt that converts into equity should it hit trouble. It has issued $4 billion of contingent capital debt and may issue $6 billion more. RBS and Lloyds have also asked shareholders for permission to issue the same kind of debt.

For Deutsche, a higher capital cushion could also open the door to higher dividend payments.

"Today we can say that the so-called hunger march is over," Jain said, referring to investor appetite for more generous payouts. Germany's biggest bank by market value has kept dividend payments steady at 0.75 euros per share since 2009.

Deutsche said its strengthened balance sheet would allow it to buy up assets and poach market share from rival lenders who are pulling back. It declined to specify where the market share gains would come from, but has in the past said it would continue investing in its investment bank even as rivals like UBS pull out of fixed income. ($1 = 0.7634 euros) (Additional reporting by Matt Scuffham and Kylie MacLellan in London; Editing by David Holmes)