Now raising intellectual capital
How does a bank raise capital when institutional investors are steering clear of hybrid debt? The dilemma may be particularly acute for Deutsche Bank, which is still in bad odour with some fund managers for not repaying some subordinated debt at the first opportunity this year as expected.
Deutsche has come up with an answer — bypass the institutional investors and flog some of your capital to the rich man in the street instead. The bank is marketing more than 300 million euros in fixed rate perpetual notes, yielding nearly 10 percent, primarily to retail investors.
If that yield sounds like a lot, it isn’t enough to tempt many asset managers who previously bought tier 1 debt securities. They are still nervous of the asset class because the European Commission is starting to demand banks spread the pain of bailouts with creditors by forcing them to defer coupons and not call debt.
Investors have also twigged that banks won’t always repay the bonds at the earliest opportunity just to please bondholders, as Deutsche illustrated this year. Some fund managers are now so sick of subordinated bank debt they want to have the bonds excluded from investment-grade bond indexes, as Reuters reported yesterday.