UPDATE 1-Deutsche Bank announces first AT1 bond sale

Mon Apr 28, 2014 2:55pm EDT

(adds background, more details)

By Kirsti Knolle and Aimee Donnellan

FRANKFURT/LONDON, April 28 (Reuters/IFR) - Deutsche Bank announced its first-ever Additional Tier 1 (AT1) bond sale on Monday, a multi-currency benchmark deal intended to address concerns about its capital reserves.

Aiming to satisfy new regulations for European banks in the wake of the global financial crisis, Deutsche plans to raise up to EUR5bn in deeply subordinated bonds to shore up its balance sheet.

The multi-currency nature of the trade - as well as the potential overall size of the deal - will set a precedent for European banks dealing with the new regulatory framework.

"Today's announced transaction is the first step towards reaching the overall targeted volume of approximately EUR5 billion of CRD 4 compliant Additional Tier 1 capital which the bank plans to issue by the end of 2015," Deutsche Bank said.

The issuance will be the third step in a series of measures announced a year ago to strengthen the bank's capital structure. It follows a EUR3 billion equity capital raise in April 2013 and the issuance of USD1.5 billion CRD 4 compliant Tier 2 securities in May 2013.

The lender said the AT1 notes, also known as CoCos, will have a temporary write-down at a trigger level of 5.125 percent phase-in attached warrants, excluding shareholders' pre-emptive rights.

Market expectations are that it will tap the euro, sterling and US dollar markets simultaneously.

NEW LANDSCAPE

Tougher Basel III regulation is forcing banks to be creative in meeting capital levels.

So far only Lloyds has raised more than EUR5bn in the AT1 market - but that deal was done as part of an exchange, and so did not truly test demand for a brand new issue.

AT1 is a relatively new type of instrument that provides a bank in trouble with capital when it needs it most, either by temporarily reducing investors' principal or converting their holdings into equity.

Deutsche Bank's AT1 bonds are expected to follow the template set by French banks by using the temporary write-down structure where investors can eventually see their holdings recovering.

Earlier this month, Germany's finance ministry gave German lenders long-awaited certainty on the tax treatment of these instruments, bringing the country in line with the United Kingdom, Denmark, Belgium, Italy, France and Spain where banks have forged ahead by raising billions in the format.

Deutsche, which will release its interim report on Tuesday, has been under pressure from regulators in recent months to bolster its capital base and could need as much as EUR2.2bn in extra capital to meet tough new rules from the European Banking Authority.

Deutsche Bank said last month that its CDR4 pro-forma Common Equity Tier 1 ratio was 9.7% at the end of 2013.

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TAX TREATMENT: here(sort=frequency/descending),monthnavigator(sort=number/descending),yearnavigator(sort=name/descending),storytypenavigator(sort=frequency/descending),organisationsnavigator(sort=frequency/descending)&sAddKeyword=deutsche+bank+additional+tier+1&vec= [banks,%201][legal%20certainty,%200.825723][balance%20sheets,%20 0.6742]

SIZE OF POTENTIAL GERMAN BANK AT1 ISSUANCE: here(sort=frequency/descending),monthnavigator(sort=number/descending),yearnavigator(sort=name/descending),storytypenavigator(sort=frequency/descending),organisationsnavigator(sort=frequency/descending)&sAddKeyword=deutsche+bank+additional+tier+1&vec= [german%20banks,%201][moody,%200.894427][banks,%200.816497]

DB 2013 annual report

here

ADDITIONAL TIER 1 MARKET: here(sort=frequency/descending),monthnavigator(sort=number/descending),yearnavigator(sort=name/descending),storytypenavigator(sort=frequency/descending),organisationsnavigator(sort=frequency/descending)&sAddKeyword=deutsche+bank+additional+tier+1&vec= [secondary%20market,%201][danske%20bank,%201][investors,%200.894 427] (Reporting by Kirsti Knolle at Reuters and Aimee Donnellan at IFR; Writing by Helene Durand; Editing by Natalie Harrison and Marc Carnegie)

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