* Bank warns of material risks stemming from probes
* Rights issue prices above expectations
* Bank says investment bank results suffered so far in Q2
(Recasts with legal risks)
By Thomas Atkins
FRANKFURT, June 5 Deutsche Bank
warned that potential fines stemming from a range of
investigations could threaten its capital base, casting a shadow
over an 8.5 billion ($11.6 billion) capital hike that had
soundly beaten price expectations.
Deutsche Bank cautioned that performance at its investment
bank, its largest division, had weakened in April and May and
that potential fines could complicate efforts to comply with
regulatory capital minimum requirements.
The warnings came only hours after Germany's largest bank
priced its rights issue at a higher than expected 22.50 euros
per share, enabling it to raise more capital than anticipated to
fortify its regulatory ratios and pay for a restructuring.
In a 500-page prospectus published as part of the issue,
Deutsche listed a series of potential threats, saying an ongoing
global probe into currency price manipulation and a U.S. probe
into financial dealings with Iran posed material risks.
"The increasingly stringent regulatory environment to which
Deutsche Bank is subject, coupled with substantial outflows in
connection with litigation and enforcement matters, may make it
difficult for Deutsche Bank to maintain its capital ratios at
levels above those required by regulators or expected in the
market," the bank said.
The 6.75 billion euro rights issue forms the lion's share of
a two-part capital hike totalling 8.5 billion euros announced by
the bank in mid-May.
Deutsche has been dogged by investigations launched in the
wake of the financial crisis, paying over 5 billion euros in
fines and settlements in the past two years. Analysts at Credit
Suisse recently estimated that Deutsche faced another 3.9
billion euros in litigation costs.
Deutsche Bank has set aside 2 billion euros in legal
provisions in anticipation of further fines or settlement costs.
Investors welcomed the rights pricing cautiously but pushed
the shares down 2.5 percent after the bank published the legal
warnings, making it the biggest loser among European banks
. "The enthusiasm has its limits," said one of the bank's
top ten shareholders under the condition of anonymity.
"It is good that DB is beginning to fill the real and
perceived capital gap that they have suffered since the
financial crisis," said a European fund manager. "The equity
issue is necessary to achieve this and it good to see management
dealing with this despite the large size of the deal."
LAST MAN STANDING
The bank has spent more than two weeks marketing the rights
issue to shareholders, with co-Chief Executives Anshu Jain and
Juergen Fitschen promising both cost cuts and business growth as
part of a turnaround plan.
Deutsche sees itself as Europe's last man standing in the
investment banking sphere after a pull-back by Barclays
, UBS and others left a gap that it aims to
fill as a top debt trader.
It wants to fortify its position in North America and Asia
in wealth management and investment banking while modernizing
its domestic retail franchise in Germany.
But at least half of the new money will go to filling new
capital demands triggered by regulatory reforms, bank officials
have told investors.
The price of 22.50 euros per share represents a discount of
around 21 percent to the theoretical share price accounting for
the dilution of the new shares, meaning Deutsche was not forced
to offer the shares at a huge discount.
That compares favourably to discounts of 33-38 percent for
recent capital hikes by Commerzbank, Sabadell
Trading in the subscription rights on the German
stock exchanges is expected to take place from June 6 to June 20
and in New York from June 6 to June 18.
Deutsche shares have fallen some 16 percent since the start
of the year compared with a 5 percent rise on average by rivals
, partly due to expectations of a dilutive capital hike.
The issue hit a procedural delay on Wednesday that forced
the bank to stall the pricing by one day.
($1 = 0.7341 Euros)
(Additional reporting by Kathrin Jones and Arno Schuetze in
Frankfurt and Freya Berry and Simon Jessop in London; Editing by