Recently, Frankfurt-based Deutsche Bank AG (DB) issued $1.5 billion of subordinated notes that qualify under Tier 2 capital. The notes have a maturity date of May 24, 2028. The issuance of notes is part of the German lender’s newly made announcement to raise roughly $2.56 billion through a number of debt issuances.
The notes carry a yield of 4.296%, equivalent to a 2.375% interest rate above the 10-year Treasury rate. Further, there will be a one-time call on May 24, 2023, when the debt will be reset to the 5-year mid-swap rate with an additional 2.2475%.
Deutsche bank will be using the proceeds from the issuance for general corporate purposes, apart from boosting its regulatory capital level. The notes will likely receive ratings of Baa3 from Moody's – a unit of Moody's Corp. (MCO) – BBB+ from Standard and Poor's, and A- from Fitch.
We believe the issuance of notes is an attempt by the bank to bolster its capital levels and cater to the stringent regulatory norms. Dented by the eurozone debt crisis, Deutsche Bank experienced a fall in trading revenues in the past year. Thus, in its Strategy 2015+, announced in September, the bank posited a number of initiatives to enhance its competitiveness including efficiency improvements, cost cuts and reduced complexities.
Further, the company is focused on reducing its risk-weighted assets. Notably, its de-risking measures have gathered momentum. The bank achieved €9 billion ($6.8 billion) of risk-weighted assets equivalent reduction in NCOU in the first quarter of 2013.
Deutsche Bank currently carries a Zacks Rank #2 (Buy). Other banks worth considering include Bank of Montreal (BMO) and The Bank of Nova Scotia (BNS), both of which carry the same rank as Deutsche Bank.
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