Deutsche Bank Sells Abbey Life Unit to Phoenix for $1.2 Billion--2nd Update
28 September 2016 - 4:12PM
Dow Jones News
By Jenny Strasburg in London and Andrea Thomas in Berlin
Deutsche Bank AG said Wednesday it sold its U.K.-based Abbey
Life insurance unit to Phoenix Group Holdings Ltd. for $1.2
billion, boosting the German lender's capital cushion slightly at a
time of intense focus on its financial health.
Shares of Deutsche Bank, which have fallen sharply in recent
weeks over questions about its capital position, were up 3.2% in
afternoon trading Wednesday in Europe, at EUR10.90.
The deal will result in a pretax loss of roughly $897 million
for Deutsche Bank from goodwill and other write-downs, but the bank
said overall the sale would add 0.1 percentage point to a closely
watched capital measure, its common equity Tier 1 capital ratio.
That ratio stood at 10.8% at midyear.
The capital-ratio improvement stems from newly toughened
regulatory requirements that have dogged Deutsche Bank and other
European lenders. Abbey Life's business--which includes managing
annuities and derivatives based on anticipated life expectancy--is
risky under capital rules. Therefore, even though Deutsche Bank is
taking a loss getting Abbey Life off its balance sheet, the sale
reduces the bank's risk-weighted assets and improves its vital
capital ratio.
That is something the lender badly needs to do, and which has
spurred it to pursue sales of other assets.
Deutsche Bank executives have faced increasing pressure to
reassure investors of the bank's stability in recent weeks. They
denied this week that the lender sought help from the German
government in negotiating a potential multibillion-dollar U.S.
legal settlement, responding to a German media report.
John Cryan, Deutsche Bank's chief executive, on Wednesday in an
interview in German newspaper Bild also denied that he had asked
Chancellor Angela Merkel for financial support for the bank and
said the bank doesn't need it.
A looming financial settlement with the U.S. Justice Department
has pushed down Deutsche Bank shares since The Wall Street Journal
reported Sept. 16 that U.S. authorities sought $14 billion from the
lender to close mortgage-securities probes. Deutsche Bank said it
doesn't intend to pay "anywhere near" that amount, and said its
negotiations with the Justice Department were just starting.
But the prospect of even a smaller fine that could swallow
Deutsche Bank's legal reserves has continued to concern
investors.
"The market seems to price in a negative short-term outcome,"
UBS AG banking analysts said in a note this week. The analysts said
that even if Deutsche Bank can avoid raising capital soon, it might
be forced by bank supervisors to take other painful steps to boost
its capital ratios.
Part of Deutsche Bank's difficult balancing act involves cutting
jobs and businesses but not so deeply that it guts its ability to
generate profits, particularly in its investment bank.
The swirl of speculation around Deutsche Bank has been
relentless. Another German media report on Wednesday said the
German government and regulators were preparing a rescue plan for
the lender that could involve the government's taking a 25% stake
in the bank. Germany's finance ministry denied the report,
published in Die Zeit weekly. Die Zeit, citing unnamed sources,
said contingency plans also could involve Deutsche Bank's selling
off parts of its business to other companies.
"This report is wrong. The government isn't preparing any rescue
plan," said finance ministry spokeswoman Nadine Kalwey. "There is
no reason for any such speculation. The bank has explicitly stated
this."
The bank has set a goal of reaching a common equity Tier 1 ratio
of 12.5% by 2018. To get there it has to conserve or bring in new
capital such as by sharply cutting costs or raising money from
investors.
Economic headwinds and weak profits in its core businesses have
made the job harder over the past year. The bank's distressed share
price makes raising equity an unattractive option. Executives have
repeatedly said they have no plans to issue shares.
On Wednesday, Mr. Cryan said selling Abbey Life, besides helping
the bank's financial position, will allow its asset-management arm
to focus on core businesses.
For U.K. insurer Phoenix, Abbey Life will add around $13 billion
of assets under management, 735,000 new policyholders and boost
cash flow to support planned dividend increases. The purchase will
be partly funded through a rights issue of more than $900 million.
It is subject to regulatory approval.
As part of the transaction, Deutsche agreed to indemnify Phoenix
to cover as much as roughly $228 million in potential costs
stemming from a U.K. regulatory investigation into Abbey Life's
annuity sales and other practices
Madeleine Nissen contributed to this article.
Write to Jenny Strasburg at jenny.strasburg@wsj.com and Andrea
Thomas at andrea.thomas@wsj.com
(END) Dow Jones Newswires
September 28, 2016 10:57 ET (14:57 GMT)
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