FRANKFURT â€" Deutsche Bank’s decision to issue $3.65 billion in new stock is an attempt to squelch once and for all the bank’s reputation as one of Europe’s riskiest and least capitalized lenders, top managers said. The move was not, they insisted, a response to pressure from regulators in Europe or the United States.
“It was our decision,†Anshu Jain, co-chief executive of Germany’s largest bank, said during a conference call with analysts on Tuesday. “There was no gun to the head.â€
The move drew sustained applause from investors. Deutsche Bank shares rose 7 percent in Frankfurt trading on Tuesday on expectations that the share sale will clear the way for higher dividend payments, even though an increase in the number of shares lowers each shareholder’s cut of profits.
Deutsche Bank, based in Frankfurt, has long faced criticism that its capital buffers were too small and that it carried too much risk from derivatives and other volatile investment banking products.
But since taking over last year Mr. Jain and the other co-chief executive, Jürgen Fitschen, have been hoarding profit and selling assets to raise the proportion of capital to money at risk. The sale of new shares, announced Monday, will boost capital still further.
Mr. Jain and Stefan Krause, the bank’s chief financial officer, portrayed the share issue as a turning point that will set the stage for the bank to focus less on the baggage left over from the financial crisis and more on growth and profit.
“We could see where a capital raise would bring us to the point where the capital issue was off the table,†Mr. Jain said.
European banks have as a rule taken longer to put the financial crisis behind them than American banks. The European lenders have had to deal with the burden of the euro zone debt, but also faced less pressure from regulators to confront their problems. Lately, though, there have been signs that some of the bigger banks are returning to health. UBS, the Swiss bank, reported first quarter profit of $1 billion Tuesday, slightly lower than a year earlier but much better than analyst estimates.
Mr. Krause said during the conference call with analysts that the decision to sell new shares was also not a response to plans by the Federal Reserve to require American units of foreign banks to hold more capital, a move that would affect Deutsche Bank because of its large presence in America.
Investors seemed to buy the optimistic scenario sketched by the Deutsche Bank executives. Some analysts were more cautious, noting that Deutsche Bank still faces an array of legal proceedings that could be costly to resolve, as well as uncertainty in the European economy, which is stuck in recession. The bank has set aside 2.4 billion euros to cover the potential cost of proceedings that include a tax evasion probe in Germany and an international investigation into accusations that employees of Deutsche Bank and other investment banks colluded to fix benchmark interest rates.
“Whilst we still see risks from litigation, regulation and the macro environment, the strengthened capital position should put the group in a better position to deal with these challenges going forwards,†analysts at Credit Suisse wrote in a note to clients. The Swiss bank upgraded Deutsche Bank shares to neutral, from underperform.
The new shares will count toward Deutsche Bank’s capital reserves, the money banks set aside to absorb losses in a crisis. The new capital will allow Deutsche Bank to rank near the top among large European banks in the size of its reserves, rather than near the bottom, and to comfortably meet new regulatory requirements.
Stock investors Tuesday were also rewarding Deutsche Bank for an increase in profit reported Monday after Frankfurt trading had closed. Net profit in the first quarter of 2013 rose to 1.66 billion euros ($2.16 billion), up nearly 18 percent from 1.41 billion euros a year earlier. Though revenue was nearly flat, rising 2 percent to 9.4 billion euros, the bank was able to cut costs.
Mr. Krause said on the conference call that the bank expected to save about 1 billion euros over the full year.
