* Market talk of 9-10 pct yield - analyst
* Aimed at retail investors - analyst
* Clearly less than 1 bln euro in market test - source
* Tier 1 issues expected from other banks
(Adds ratings, comments paragraphs 8-10, 14-15)
By Jane Baird
LONDON, Aug 24 Deutsche Bank AG (DBKGn.DE) plans
to raise new Tier 1 debt in a deal that could reopen Europe's
market for hybrid subordinated financial issues as banks seek to
rebuild balance sheets in the wake of the financial crisis.
The German bank confirmed it planned to issue euro
fixed-rate perpetual notes, with annual call dates beginning
from March 2015, and said it was managing the issue.
The deal would be the first of an expected series of new
Tier 1 notes to hit the market in coming months from banks that
have not needed government bailouts. [ID:nLU678785]
The deal would be smaller than 1 billion euros ($1.4
billion) as the bank was seeking to test the market's appetite
for this type of issuance, said a source familiar with the
The new issue is aimed primarily at retail investors, and
talk in the market puts the yield at 9 to 10 percent, said a
fixed-income analyst who did not wish to be identified. That
compares with its perpetual notes in the secondary market that
were priced to yield around 8.25 percent last week.
"I would be surprised if the deal were not a success," even
though some institutional investors have said they resent the
bank's decision not to call existing subordinated debt issues,
the analyst said. [ID:nLP613178].
APPETITE FOR RISK?
Tier 1 notes, also called hybrids, are a cross between debt
and equity. They are typically perpetual securities with call
dates, which a bank can ignore. A bank also can stop paying
interest on them without triggering a default.
Another analyst said he was surprised Deutsche Bank is
leading the way back into this market after having sent prices
into a tailspin in December.
"They are doing it as a retail deal to shore up their
capital ratios," the analyst said, adding that retail investors
would need to be aware the bank could decide not to repay the
bond on the call dates.
This year, Deutsche Bank has opted not to call at every
opportunity that a call date for a subordinated issue, Tier 1 or
Tier 2, has come up, he added.
The first analyst said, however, "Retail investors are
looking for a high coupon and don't mind extension risk."
As for interest payments, some crisis-hit banks have stopped
paying coupons at the instigation of governments or the European
But because Deutsche Bank has not needed a government
bailout, the risk of an EC-driven coupon deferral is low in this
case, the first analyst said.
Deutsche Bank's Tier 1 ratings are all investment-grade.
Standard & Poor's rates its Tier 1 debt at BBB+, three
notches below its A+ senior debt rating; Moody's Investors'
Service at Aa3 or two notches below Aa1 for senior debt; and
Fitch Ratings at A+, one notch below its AA- senior debt rating.
For Deutsche Bank, these notes are a non-dilutive way of
raising core Tier 1 capital, and even though they have become
more costly, they may still be cheaper than raising equity, the
first analyst said.
(Additional reporting by Philipp Halstrick in Frankfurt;
Editing by Karen Foster, John Stonestreet)