Deutsche Bank funding costs a hurdle for turnaround

FRANKFURT • Deutsche Bank AG is paying some of the highest rates among large banks to raise debt this year, highlighting a key obstacle in the lender’s turnaround effort.

Germany’s biggest bank this week sold US$1.25 billion (RM5.09 billion) of three-year dollar bonds that pay 255 basis points (bps) over benchmark interest rates, according to a person familiar with the matter who asked not to be named. That’s almost twice what other European lenders have paid in recent months.

Only Denmark’s Danske Bank A/S, which is grappling with a money laundering scandal, and Italy’s UniCredit SpA have paid similar or greater amounts. A spokesman for Deutsche Bank declined to comment on the dollar bond sale.

Deutsche Bank is among dozens of lenders paying up to issue bonds that can absorb losses in a crisis in order to meet global regulations designed to end taxpayer-funded bailouts. Investors are demanding higher returns to lend money to Deutsche Bank as the firm grapples with a prolonged decline in revenue. Options under discussion if performance worsens include a government-brokered merger with domestic rival Commerzbank AG.

Finance Chief James von Moltke said last year that the bank was caught in a “vicious circle” of declining revenue, sticky expenses, a lowered credit rating and rising funding costs. While the firm cut expenses last year, revenue and the price of funding remain a concern.

“A key priority for us now is lowering our funding costs and improving our credit ratings,” Deutsche Bank’s von Moltke said during a call with fixed-income investors last week. “We must not compromise on the strength of our capital, funding, or liquidity, but we have to prove that we can generate long-term, sustainable profitability.”

Deutsche Bank treasurer Dixit Joshi said last week that it’ll issue as much as €11 billion (RM50.47 billion) of the so-called senior non-preferred bonds this year. It reached a third of the target last week, selling about US$4 billion of the notes in euros and pound. It paid investors 230bps over benchmark interest rates for a seven-year euro bond, according to data compiled by Bloomberg. By comparison, French bank BNP Paribas SA last month offered 50bps less for equally- ranked notes that mature one year later. — Bloomberg