Deutsche Bank to ease fears in $5.4bn debt buyback

Deutsche Bank plans to buy back about $5.4bn of bonds in euros and dollars as it seeks to allay investor concerns about its finances.

The bank is seeking to bolster confidence after credit-default swaps insuring its subordinated debt rose to the highest since at least 2002, according to data compiled by Bloomberg.

The German lender was the largest in at least four years to feel compelled to reassure investors that it has enough funds to service its obligations.

“This is a tool Deutsche Bank can use to reduce the panic,” said Roger Francis, an analyst at Mizuho International in London. “It doesn’t really address the underlying concern that people have about the bank. They need earnings to pay dividends and subordinated bond coupons and that’s where the question marks are.”

The bank said in a statement yesterday that its “strong liquidity position” allows it to repurchase the senior unsecured notes without any change to its 2016 funding plan. It is offering to buy €3bn of bonds in the single currency and $2bn of dollar notes.

The cost of insuring the bank’s subordinated debt for five years declined 24 basis points yesterday to 484 basis points, after closing in London at the highest level since Bloomberg began tracking the data in 2002. The one-year contracts reached a record high of 551 basis points on Thursday, the data show.

The bank’s €1.75bn of 6% contingent convertible notes redeemable in April 2022 rose 2 cents on the euro to 73 cents up from a record low of 70 cents on Tuesday, data compiled by Bloomberg show. The banks riskiest debt was downgraded by Standard & Poor’s on Thursday to four levels below investment grade.

The offer includes the $1.75bn of bonds that the German lender issued just a little more than a month ago, according to the filing.

The firms that bought the biggest piece of that offering at 100 cents on the dollar are now being asked to sell them back to the bank at 97.3 cents, according to calculations by Bloomberg Intelligence analyst Arnold Kakuda. The securities were quoted at Thursday for 95.6 cents on the dollar.

“The bank is using market conditions to buy back these bonds at attractive prices and to cut debt,” chief financial officer Marcus Schenck said. “By buying them back below their issuance value, the bank is making a profit. The bank is also using its financial strength to provide liquidity to bond investors in a difficult market environment.”

* Bloomberg