Deutsche Bank looks at financing options in the face of legal battles

Deutsche Bank is holding informal talks with securities firms to explore options for raising capital to cope with its rising legal bills, Bloomberg reported.

Financing ideas being discussed with senior advisors include a share sale and asset disposals.

The US Justice Department is currently investigating the bank miss selling toxic mortgage-backed securities in the run up to the 2008 financial crisis and has asked for a $14bn fine in September.

The bank's shares hit a record low after the fine was announced, with it being twice this size of the €5.5bn the lender had set aside for litigation charges at the end of June.

Reuters reported shortly after that Morgan Stanley estimated the fine could be docked down to $6bn. Based on settlements of investigations on other banks, Bloomberg Intelligence estimates the fine will range from $4bn to $8bn.

According to Bloomberg, the German lender is willing to underwrite the maximum number of discounted shares allowed without shareholder approval worth around €5bn if needed.

Aside from mortgage back securities, the bank is also in trouble for a money laundering scandal tied to its operations in Russia, which analysts at Barclays speculate could cost them about €2bn.

The bank has also spoken to potential investors, the biggest of which include the Qatari royal family, Black Rock and Norges Bank, to back a possible capital increase.

Reuters has reported that its Qatari investors who own the largest stake do not plan to sell their shares and could consider buying more if the bank decides to raise capital.

German newspaper Handelsblatt reported that some of Germany’s biggest publicly traded companies are also prepared to buy shares in the bank to prop up the lender in the event of a potentially destabilising fine in the US.

In late September chief executive John Cryan told Germany’s Bild newspaper that he doesn’t plan to raise capital.

Ceryan has sought to reassure investors that he’s able to boost profitability, despite his earlier statement that the bank may fail to be profitable this year, through job cuts and cutting down on risky assets.

The bank could also revisit selling its Deutsche Postbank unit or parts or all of its asset-management division to raise cash.

Autonomous Research however said the bank is more likely to tap existing shareholders for funds rather than selling asset management or merging with Commerzbank AG.

The legal troubles have led to the debate over whether the bank should abandon its role as a universal financier that provides investment banking, asset- and wealth management and retail and go back to focusing on being a purely German and European corporate lender and retail bank.

Chief executive officer at Autonomous Stuart Graham said that assuming litigation charges from the US justice department come up to $5.6bn and $2.5bn from the money-laundering probe, the fees would led to a capital shortfall of as much as €9.5bn.

Despite the lender having several options, they’re all “unattractive,” he said.