Deutsche Bank AG (NYSE:AG) in an effort to strengthen its capital strength is turning to the Qatari royal family and a rights issue to raise around eight billion euros.
The announcement means the bank is looking to raise an amount that as at the top end of analysts’ predictions. The bank will be raising €6.3bn in a rights issue and a further €1.75bn directly from Paramount Services Holdings. Paramount is the investment arm of the Qatari royal family.
Deutsche Bank AG Capital strength
In so doing, the extra capital will raise its common equity tier one ration to 11.8% from 9.5%. It will instantly raise the bank from under-capitalized much to the delight of many investors who have criticized the bank in the past.
This summer will see the European Central Bank begin a series of stress tests and asset quality reviews on the Euro-zone’s largest banks and with this addition of this new-found capital it’s expected that Deutsche Bank will now pass with flying colors.
Despite numerous calls by investors to strengthen its capital base , the bank responded late to the call, and will now dilute the holdings of many of these shareholders. There are, however, others who will not be pleased by the capital influx as the bank has lagged pears in recent years, and the move could put further pressure on shares.
Additionally, the capital increase will strengthen the bank’s leverage ratio that was a mere 3.1% at the end of the most recent quarter.
Stefan Krause, the lender’s chief financial officer, said last month: “We will not allow the financial strength of Deutsche to be questioned and are prepared to take action as and when required.”
Deutsche Bank AG and other Qatari investments
The direct investment arm of Sheikh Hamad bin Jassim bin Jabr al-Thani, the former prime minister of Qatar invested £6.1bn into Barclays Plc (NYSE:BCS) (LON:BARC) in 2008 which allowed it to avoid a bailout by the United Kingdom. The investment vehicle also holds large positions in Bank of America, the Agricultural Bank of China and Credit Suisse.
