Deutsche gets back on its feet after AT1 blow

Deutsche Bank was at the eye of the storm that hit the Additional Tier 1 market in February when its outstanding securities fell to as low as the mid-60s because of fears about its ability to pay coupons, but was able to cap a recovery in its standing by re-accessing the senior unsecured market on 15 March.

On 20 January Deutsche announced its first annual loss since 2008, Eu6.8bn for the year, including Eu5.2bn of regulatory and litigation provisions. Despite the bank saying on 28 January that it expected to have sufficient payment capacity to service its AT1 coupons, the price of its outstanding issues fell to new lows at the beginning of February.

Deutsche responded by on 8 February publishing updated information on its 2016 and 2017 AT1 coupon payment capacity, and Deutsche co-CEO John Cryan (pictured) said the next day that the bank remains “absolutely rock solid, given our strong capital and risk position”.

S&P, however, cut Deutsche’s AT1 from BB- to B+ later in the week.

A recovery in Deutsche’s spreads alongside the general AT1 market through the rest of the month came in parallel with rumours that it would launch a buy-back of senior debt, and it subsequently did so, on 12 February. The bank tendered for up to Eu3bn of five euro-denominated securities and $2bn of eight dollar-denominated securities, and announced on 14 March that it had bought back Eu1.27bn and $740m of each, respectively, for a total of Eu1.94bn equivalent.

“The tender offer enabled us to take advantage of market conditions to repurchase debt at attractive prices,” said Deutsche Bank CFO Marcus Schenck on completion of the euro buy-back, which closed before dollar part. “We also used our strong financial profile to provide liquidity for bond investors while continuing to manage our funding levels

“This relatively low level of investor take-up reflects improving market sentiment and a preference by investors to retain their investment in Deutsche Bank.”

Its AT1 securities had meanwhile recovered to trade around the mid-80s.

A first Deutsche Bank Pfandbrief benchmark since August 2012 was launched on 1 March, with the bank finding Eu1.1bn of demand for a Eu750m eight year covered bond, before Deutsche launched its senior unsecured issue on 15 March. The Eu1.5bn three year deal was priced at 110bp over mid-swaps on the back of more than Eu2bn of orders and at a new issue premium of some 25bp, following initial price thoughts of the 115bp area.