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DB confirms buyback, AT1s shrug off downgrade
February 12, 2016 / 4:21 PM / 2 years ago

DB confirms buyback, AT1s shrug off downgrade

LONDON, Feb 12 (IFR) - Deutsche Bank announced a tender to buy back 3bn of euro and US$2bn of dollar-denominated senior unsecured debt, some of it sold just weeks ago.

The announcement confirmed a Financial Times report this week that the bank was considering buying back up to 50bn of its senior bonds outstanding.

The move comes after S&P downgraded Deutsche’s Tier 1 debt one notch to B+ from BB- on Thursday evening.

Deutsche Bank has suffered through a tumultuous few weeks, with its stock plunging to multi-year lows and its contingent capital in particular coming under pressure.

Investors have openly questioned whether the bank would be able to continue paying distributions, and S&P cited the issue when announcing its downgrade late on Thursday.

The rating agency noted the bank’s reduced Available Distributable Items under German accounting rules, which could affect its capacity to pay interest on Tier 1 and perp Tier 2.

Bankers’ early assessment of the impact of the US$5bn buyback was that it would have only a negligible impact on Deutsche Bank’s core equity position of between 3.5bp and 7bp - not including any unwinding of swap positions.

The bank’s contingent capital actually rallied on Friday in the wake of the downgrade when the financial sector caught a bid after Commerzbank unveiled a return to profit in Q4.

The yield on the 6% euro perps callable in 2022 hit an intraday wide on Thursday of 14% before bouncing back to 12.86%. Moody’s and Fitch still rate Deutsche’s Tier 1 as Double B risk - Ba3/BB.

S&P said Deutsche’s ADIs under German accounting fell to 1bn for the year ending 2015 from 2.9bn in the previous year.

Under its criteria a one-notch downgrade is typical if it believes a regulator might curtail interest payments - even if non-ADI reserves are available.

S&P left all its other senior issuer and standalone ratings unchanged, and said that it expected that Deutsche would have sufficient ADIs to pay interest. (Reporting by Alex Chambers, Editing by Marc Carnegie)

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