LONDON, April 29 (IFR) - Deutsche Bank finally lifted the
lid on one of the market's most hotly anticipated Additional
Tier 1 transactions on Monday evening, announcing plans for a
multi-currency deal that will raise a minimum of 1.5bn.
The offering, due to come after a roadshow next week, will
be the third step in a co-ordinated series of measures the bank
announced on April 29 last year to further strengthen its
capital structure. It should also pave the way for other German
banks, which could sell as much as 15.4bn in AT1 notes in the
coming years, according to Moody's.
"Everyone has been waiting for this trade and my guess is
that Deutsche will want to try and take a decent slug out of the
market," a banker said. "I think this will be a blow-out and
that they'll get 3bn-4bn done and that it will be large."
Deutsche Bank has said that it intends to raise about 5bn
of CDR4 compliant AT1 by the end of 2015. The deal follows a
3bn equity raise in April last year and a US$1.5bn Tier 2
priced in May 2013.
"Deutsche is quite late to the AT1 party and has got quite a
lot to do, so it will try to do a reasonable chunk at the first
attempt," another banker said. "That would be the sensible
Details on the final shape of the offering have yet to be
released, but the deal will include up to three currencies,
potentially making it a market first.
Credit Agricole is the only other bank to have opted for a
simultaneous currency execution, pricing a dual-tranche AT1 in
early April which took 1bn and £500m out of the market.
Lloyds has also printed more than 5bn in the format, but
that was part of an exchange, and so did not truly test demand
for a brand new issue.
Banca IMI, Barclays, Commerzbank, Danske, ING, Lloyds,
Raiffeisen Bank International, Santander, Societe Generale, UBS
and UniCredit have been appointed as joint-lead managers to help
Deutsche sell the bond.
The deal will follow a series of investor meetings running
from May 5 to May 9. There will only be one team on the road,
meaning that all the meetings will be in Europe and the bank
will not be visiting Asia.
Back in 2012, the Asian investor base was one of the key
components for distribution of banks' new-style hybrids,
although this demand waned during 2013.
Euros, sterling and US dollars will be the currencies
considered by Deutsche, although in the case of dollars, the
bank has said that any trade would be issued under Regulation S
only and thus may not be offered, sold or delivered within the
The lender said the notes will have a temporary write-down
at a trigger level of 5.125% transitional Common Equity Tier 1.
Deutsche reported a 13.2% transitional CET1 ratio on Tuesday
morning, which drops to 9.5% on a fully-loaded basis.
AN ECONOMIC ISSUER
As well as the size of the offering, market participants are
also eyeing how Deutsche handles questions surrounding potential
coupon deferral on the trades.
Coupon payments on AT1 instruments are fully discretionary,
and once they have not been paid, are lost forever.
Furthermore, AT1 instruments are subject to profit
distribution restrictions once a bank begins eating into its
capital conservation buffers, which prevents it from making
There is nothing stopping a bank from not respecting the
capital hierarchy once it starts eating into these buffers and
prioritising shareholders over AT1 holders.
"Deutsche has shown in the past that it is driven by
economics so any investor buying the AT1 will have to take that
into consideration," one banker said.
Back in 2008, Deutsche Bank angered investors when it said
it would not call a Tier 2 issue for economic reasons, breaking
market convention of issuers always retiring these deals at the
first opportunity, even if it did not make sense financially.
In August 2013, Deutsche Bank further tarnished its
reputation with a decision not to call a Tier 1 bond at the
"The 2008 decision and what followed will be relevant in the
context of discretionary coupon payment and expectations are
that there will be a lot of questions on that, but I am sure
management will have an acceptable answer for investors," one
(Reporting by Helene Durand, Editing by Sudip Roy, Julian