Deutsche Bank battles bailout rumors

Deutsche Bank announced on Wednesday it had sold Abbey Life Assurance company for 935 million pounds (1.1 billion euros, $1.22 billion) under efforts to restructure its business amid increasing regulation, negative interest rates and a competitive home market.

Deutsche's insurance business in the UK was acquired by Phoenix Group - Britain's largest owner of life insurance funds, who added about 10 billion pounds of assets under management and approximately 735,000 policyholders to its portfolio with the deal. 

Phoenix said it would raise 735 million pounds via a rights issue and use 250 million pounds from a new bank facility to fund the purchase. Both companies said the deal was still subject to regulatory approval by the authorities in Britain and Germany.

Deutsche Bank said in a statement that the sale would boost its core capital ratio - the stock of funds regulators require banks to have on hand - by 10 basis points, or 0.1 percent over its level on June 30.

The lender is currently restructuring its business, selling assets abroad and planning to slash 200 branches in Germany as well as almost 9,000 jobs worldwide by 2020. Shares in the bank have lost more than half of their value since January after the bank booked a loss of almost 7 billion euros in 2015.

Penalties and bailout

The sale was a rare piece of good news for investors in the German lender as they saw the bank's share price surge more than 3 percent in early trading on Wednesday, recouping a fraction of the heavy losses they suffered earlier in the week.

Deutsche's share price virtually collapsed in mid-September when it became known that the US Department of Justice is seeking a fine to the tune of $14 billion from the bank over its role in the subprime mortgage crisis.

As a result, rumors have surfaced that the bank might need a rescue package from the German state. Just on Wednesday, Germany's respected weekly newspaper Die Zeit reported that government officials were working on a plan to rescue the bank "if the worst comes to the worst." The Finance Ministry later denied the report, saying it was "wrong" and that there were "no grounds for such speculation."

The Deutsche Bank CEO also went public with a disclaimer on Wednesday, telling Germany's mass-circulation newspaper Bild that the bank had not asked for state aid to help it deal with the US penalty. State aid was "not on the table," he said in the interview, adding that he had "at no point" asked for help from German chancellor Angela Merkel.

"It has been clear from the beginning that we won't pay this amount," Cryan said with regard to the US fine, expressing the hope that his bank would be treated "as fairly as the American banks" that have settled their cases with much lower payouts.

Analysts expect Deutsche will be able to negotiate down its bill with the US authorities, but it is not clear whether the $5.5 billion the bank has set aside to cover its legal costs will be enough. There is a fear that the bank might be forced to raise more capital on markets, thus diluting the value of existing shares.

However, CEO Cryan sees no need for a capital increase "at the moment," as he told the newspaper: "We have far fewer risks on our books than before and we have a comfortable supply of free liquidity, of cash."

uhe/jd (AFP, Reuters, dpa)