* Capital houses offer Tier 1, Tier 2 and CoCo ideas
* Bankers pin hopes on reciprocity trade
* Regulatory hurdles to stall issuance for minimum 6 weeks
By Aimee Donnellan
LONDON, July 26 (IFR) - Global capital houses are sidling up
to Deutsche Bank to get their hands on what they hope could be
EUR6bn worth of hybrid capital business if the bank breaks with
its tradition of self-led deals and mandates outside experts to
Deutsche Bank is looking to begin filling a gaping capital
hole in the coming months as European and US regulators continue
to criticise the bank for having an insufficient cushion to
handle another crisis, banking sources said. Further clarity is
expected to emerge when second quarter results are released next
With just four days to go, a number of capital powerhouses
are scrambling to offer the bank a range of choices in a bid to
win the all-important mandates.
"Deutsche Bank is planning to issue a lot of capital, so it
would make sense for them to hire banks that can offer a
different viewpoint, have underwriting capabilities and who will
be able to support trading," said a senior DCM banker.
Tier 1, Tier 2 and contingent convertible (CoCo)
instruments are currently being discussed for deals that could
emerge as early as September, bankers said this week.
YOU SCRATCH MY BACK
The hopes, however, are pinned on the German lender breaking
away from self-led deals. All of the EUR4.75bn-equivalent Tier 1
and Tier 2 deals it has sold over the past five years have been
self-led, according to IFR data.
Bankers argue that Deutsche would not only benefit from
outside expertise, but would also have a better chance of
involvement in its peers' capital issues, thereby improving its
own business through reciprocity.
Reciprocity is already becoming an important part of the
bank capital business. UBS hired 13 lead managers to sell its
low trigger CoCo in May, and since then, bankers have been using
that as a cheat sheet on which banks are likely to emerge in the
capital space in coming months.
UBS's USD1.5bn Tier 2 CoCo priced with a 4.75% coupon and
was sold by UBS's own syndicate team, as well as via Banca IMI,
Barclays, BBVA, Credit Agricole CIB, Danske, HSBC, ING, Lloyds,
Mizuho, RBS, Santander and UniCredit.
UBS paid fees of 1.25% for the USD1.5bn deal, according to a
banker involved, which works out at USD18.75m. Broken down, it
gave its own syndicate team around 50%, and the remainder was
divided between the other 12 banks depending on their
The same fee structure applied to Deutsche Bank's EUR6bn
hybrid target would mean a potential EUR75m payout to be divided
in a similar manner amongst its own syndicate and the Street.
"UBS and Deutsche Bank are at opposite ends of the spectrum,
but in the end capital issuers are all going to have to go one
way. You can't have a bank doing self-led deals and expecting to
get reciprocity business from others," said another DCM banker
that is in talks with Deutsche Bank.
Before any of this business is awarded externally, Deutsche
Bank has to gain further clarity on the regulatory treatment of
certain capital instruments, which is expected to be in the next
The bank is believed to be considering a number of options.
"It would make sense for Deutsche Bank to issue Additional
Tier 1 debt because it would be the most cost-efficient way to
improve their leverage ratio, as well as their broader Tier 1
capital requirements," said Simon McGeary, head of the new
products group at Citigroup.
The market is currently awaiting confirmation that a tax
charge on any writedown gain on a Tier 1 bond does not result in
any upfront reduction in its capital treatment.
The Capital Requirements Regulation (CRR) does not provide
full clarity on this, and the question is being considered by
the European Banking Authority (EBA) through its new Q&A
In practice, most situations where a writedown occurs would
involve substantial losses, which would be likely to shield any
gains from tax.
For the past few years, Deutsche Bank has focused its
efforts on Tier 2 instruments, and issued a USD1.5bn 15-year
non-call 10 note in May on the back of nearly USD5bn of orders.
(Reporting by Aimee Donnellan; Editing by Natalie Harrison and