Deutsche Bank shares drop on €8bn capital hike

Harriet Green
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Deutsche Bank shares fell over 2.6 per cent this morning, after yesterday’s announcement that it plans to raise €8bn (£6.5bn) in new capital.

The bank will raise €6.3bn in new equity via a rights issue, with the remaining €1.75bn stake taken by the Qatari royal family through its Paramount fund.

Deutsche Bank also put forward a growth plan last night, which it believes will increase shareholder payout over the long term, through the hiring of senior professionals in the US.

But investors won’t just be mulling over the cash call and new strategy. Plenty of questions still hang in the air over whether the former will be enough to plug the lender’s capital hole. Some analysts have suggested that it actually has a €10bn capital shortfall.

Moreover, others have voiced concerns about how viable using an increased capital base to better returns is, as more capital automatically means a lower return on equity.

Espirito Santo Investment Bank has said this morning that it thinks the capital increase will be "sufficient to meet regulatory requirements". That said, it has stressed the potential for unsustainability when it comes to return on equity:

...It could be that Deutsche is pouring good money into a business that will not be able to sustain returns above the cost of equity, despite it now being one of the only European banks continuing to invest in its fixed income instruments, currencies and commodities franchise.