The Great Debate UK
By Hugo Dixon and Peter Thal Larsen
Deutsche Bank is killing two birds with one cash call. The official reason for the planned 8-9 billion euro ($10-11 billion) rights issue will be to complete the acquisition of Postbank, the German retail bank. But the fundraising also provides cover for jumping to the front of the queue of German banks that will need to top up their capital as a result of upcoming tighter regulation.
Deutsche was proud of the fact that it was one of few major western banks to avoid a big capital call during the financial crisis. And since then, the bank has argued that it would not raise capital, except to finance acquisitions.
But Josef Ackermann, Deutsche's chief executive, still cannot crow. The Postbank acquisition was a bad one, at least financially. Bulking up in German retail banking may make sense strategically as it will help reduce Deutsche's reliance on its investment bank. But Ackermann agreed on a high price for a 62 percent stake in the bank just before Lehman Brothers went bust in September 2008.
What's more, that multi-stage transaction carried extra liabilities. Deutsche was always going to have to make an offer for the rest of Postbank no later than 2012. The good news is that by moving now, it will be allowed under German takeover rules to offer a rather low price. But that still involves doling out cash. Second, Postbank itself is undercapitalised -- just squeaking in above the European Union's stress test levels in July. So Deutsche will need to fill up its new subsidiary's coffers too.
Not that Deutsche itself is awash with capital, either. Its core Tier 1 ratio of capital to assets at the end of June was just 7.5 percent, perilously close to the minimum regulators are likely to agree this weekend, and lower than the likes of Credit Suisse and Goldman Sachs. So raising extra cash is helpful here too.
Deutsche Bank is losing half of one of the few successful double acts in investment banking. Michael Cohrs, who has co-run the German group's investment bank for six years, is to set to retire and hand sole charge of the unit to Anshu Jain. Cohrs' departure and the concentration of power in a markets whizz may unsettle investors. But while the transition has its challenges, this looks like a natural evolution.
Cohrs' exit comes against a backdrop of high-profile exits from Deutsche, with several senior bankers -- including a co-head of the U.S. natural resources team -- leaving this year. But the timing looks pre-planned. It coincides with the original leaving date scheduled for group chief executive Josef Ackermann, who deferred his own retirement to 2013.
Regulators and bankers rarely see eye to eye. But at the World Economic Forum in Davos, the two sides were in surprising agreement about creating a global fund, financed by a tax on banks, to deal with future bailouts.
Mario Draghi, head of the Financial Stability Board, which is spearheading a new global financial regulatory regime under the auspices of the G20, floated the idea of a cross-border body to manage this fund. Surprisingly, several big European banks -- including Barclays and Deutsche Bank -- support it.
The debate about reforming the financial system is often presented as an argument between regulators on one side and banks on the other. But it is also beginning to throw up some differences among banks. One such rift has been exposed by the suggestion that banks should be forced to hold greater reserves of liquidity and capital in national subsidiaries.
Regulators see this as a way of dealing with the future failure of a big bank. Rather than relying on the bank's home government to pick up the tab -- something it may not be able or willing to do -- each country where the institution operates could take responsibility for its local subsidiary.
The End Is Nigh is always an arresting headline, the end which is nigh now is the Age of Oil, following the deep thoughts of the boffins at Deutsche Bank.
They are forecasting a "game change" as a result of - wait for it - the electric car. Their thoughts are "unburdened by the conflicting forecasting agendas of government agencies, oil companies or auto makers", so can roam the intellectual highways and byways.