Bond buy back talk lifts Deutsche Bank

Deutsche Bank shares jumped the most in almost seven years and credit risk fell as Germany’s biggest bank considers a bond buyback to help ease investor concerns about its funds, according to a person with knowledge of the matter.

While the bank has ample cash to make the purchases, no decision has been made and a buyback may yet be deemed unattractive, the person said.

Such a move would focus on senior bonds and probably wouldn’t include the firm’s riskiest debt, known as CoCos.

Renee Calabro, a spokeswoman for the Frankfurt-based bank, declined to comment on its plans.

Deutsche Bank co-chief executive John Cryan is seeking to reassure investors and staff that the bank is “rock solid” after the shares erased almost €2bn of the company’s market value earlier this week.

While the lender said on Monday it has more-than-sufficient means to pay coupons on its riskiest debt both this year and next, the statement did little to reverse a sell-off in credit markets.

“There’s a lot of concern about banks’ ability to retain earnings and lift capital ratios,” said Neil Smith, an analyst at Bankhaus Lampe in Dusseldorf, who has a buy rating on the shares.

“With ample liquidity, it makes perfect sense to buy back debt, especially for banks like Deutsche Bank, which are shrinking their balance sheet,” he said.

The shares soared at one stage yesterday as much as 17%, the biggest intraday gain since March 2009. The bank has lost about 33% of its value this year.

Deutsche Bank’s €1.5bn of senior notes due in March 2025 rose 3c on the euro to 92c yesterday.

Its €2bn bonds due in September 2021 rose 2c to about 98c.

The lender has about €53.8bn of senior debt outstanding. The weighted average maturity of its €144bn of debt is six years.

If Deutsche Bank buys its bonds above market prices, it’s “effectively creating a floor” for senior notes “to discourage investors either selling or shorting risk,” said Roberto Henriques, a credit analyst at JP Morgan Chase.

“They’re attempting to invert the negative pressures we’ve seen on the CDS; stopping the rot, so to speak,” he said.

The cost of insuring Deutsche Bank’s debt fell for the first time yesterday in nine days from the highest levels since 2011 earlier this week, according to Bloomberg data.

Credit-default swaps on its senior debt dropped 11 basis points to 232 basis points and contracts on its junior debt declined 15 basis points to 455 basis points.