Deutsche Bank is turning to the Qatari royal family in a bid to raise 8.0 billion euros ($11 billion) in fresh funding and assuage fears over its capital strength.
Germany’s biggest lender unveiled late Sunday plans to implement the second-biggest capital increase in its history.
Like its European counterparts, Deutsche Bank is under pressure to bolster its capital reserves.
As part of a wider drive to set up a banking union as a bulwark against future financial crises, banks are being subjected to so-called stress tests and asset quality reviews by the European Central Bank this summer.
Deutsche Bank announced it has placed 60 million shares at a price of 29.20 euros apiece with Paramount Holdings Services, the investment of the Qatari royal family.
On top of this, it would issue up to 300 million new shares to raise a further 6.3 billion euros.
Subject to the approval by the national financial sector watchdog, BaFin, Deutsche Bank would send out a prospectus in early June and investors have until June 24 to subscribe to shares.
Deutsche Bank estimates the move will boost its key Tier-1 capital ratio to 11.8 percent from 9.5 percent at the end of the first quarter of 2014.
“These measures will substantially increase our capital ratio, provide a buffer for future regulatory requirements, and support targeted business growth,” Deutsche Bank explained.
While the move had been widely speculated, anaylsts were surprised by its magnitude.
“Even though the probability of a capital increase had risen, the announcement was clearly a surprise. The volume of 8.0 billion euros was more than we had thought likely,” said Equinet analyst Philipp Haessler.
In an interview with the mass-circulation daily Bild on Monday, one of the bank’s two co-chief executives Anshu Jain explained that Deutsche Bank had chosen the Qatar investment fund “because it intends to remain a key investor.”
The price paid by Qatar is around 5.0 percent lower than the closing price of Deutsche Bank shares last Friday.
The shares were correspondingly lower on the Frankfurt stock exchange on Monday, shedding 1.92 percent to 30.15 euros.
Analysts at ING saw the capital hike as an “intelligent move” that would appease concerns about the strength of its balance sheet.
Deutsche Bank said it would use the fresh capital to “accelerate” its growth strategy in the United States and boost its digital capabilities in Germany and Europe.
It also planned to hire advisory services for multi-national corporate clients and bolster its activities in key wealth management markets.
Deutsche Bank is focussing on its core banking business and last week announced the sale of The Cosmopolitan casino in Las Vegas to private equity group Blackstone for $1.73 billion.