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Financials

Deutsche eyes more CoCos to meet new leverage ratio target

LONDON, Oct 29 (IFR) - Deutsche Bank is planning to issue up to 4bn of Additional Tier 1 bonds as it seeks to meet a new and more stringent leverage ratio target.

As part of its Strategy 2020 plan, the bank said on Thursday it was targeting a leverage ratio of at least 5% by 2020 and a Common Equity Tier 1 ratio of at least 12.5% from the end of 2018.

The bank’s plans to tap the CoCo market should help dispel investor fears that, because of the massive write-down it unveiled in early October, it could cancel coupons on its outstanding Additional Tier 1 debt.

As well as reopening its Additional Tier 1 programme, the bank said it would suspend dividend payments for 2015 and 2016 and reduce risk weighted assets by around 90bn by 2018.

“We see the cut of dividend as supportive for AT1 coupon payment,” BNP Paribas analysts wrote in a note on Thursday.

In Thursday’s presentation, Deutsche Bank said a further 3bn-4bn of Additional Tier 1 issuance would support the leverage ratio. A year ago the bank completed a 5bn CoCo programme in a bid to increase its leverage ratio from 2.4% at the start of 2014 to 3.5% by the end of 2015.

While coupon payments appear safe for now, the prospects of more supply weighed on Deutsche’s outstanding Additional Tier 1 paper on Thursday. A 1.75bn perpetual callable 2022 was yielding 6.98%, up from the 6.93% at the open, according to Tradeweb prices. (Reporting by Helene Durand, Editing by Alex Chambers, Julian Baker)

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