Deutsche Bank shares rose on Wednesday by three percent on news it had sold its British insurance business Abbey Life to Phoenix Group Holdings.
Point of view
There are simply no votes in supporting a failing bankInvestment Director, Fidelity International
Phoenix, Britain’s largest owner of life insurance funds closed to new customers, is paying 935 million pounds (1.08 billion) euros) for the unit which manages assets worth 10 billion pounds (11.6 billion euros) and has 735,000 policyholders, the companies said.
Although the deal announced on Wednesday will result in a pre-tax loss of some 800 million euros in the first quarter, mainly from writedowns for Deutsche Bank, it will lift the German lender’s capital ratio by 10 basis points.
The sale was a rare piece of good news for Deutsche Bank investors.
The shares of Germany’s largest lender had again hit a new record low at one stage on Tuesday as investors fretted about how many billions it will have to pay in fines to the US Department of Justice for wrongdoing in the run up to the 2008 financial crisis.
German Chancellor Angela Merkel kept her distance from the mess when asked about it at a news conference on Tuesday.
“I only want to say that Deutsche Bank is a part of the German banking and financial sector. And of course we hope that all companies, also if they face temporary problems, can develop in the right direction. I don’t want to comment beyond that,” Merkel said.
Deutsche Bank – facing a $14 billion demand from Washington – denies that it had ever asked for help from the German government.
In an interview with German daily Bild published on Wednesday, Chief Executive John Cryan said: “At no point did I ask the chancellor for support. Neither did I suggest anything like that.”
Merkel has in the past has been a hard liner on too-big-to-fail banks and cannot risk alienating voters now.
Tom Stevenson, Investment Director at Fidelity International, explained: “I don’t think we should be surprised that the German government is unwilling to step up to the mark and to bail Deutsche Bank out, to send money essentially to the US on behalf of Deutsche Bank. We have got elections next year in Germany and there are simply no votes in supporting a failing bank.”
Commerzbank ‘plans layoffs, dividend cut’
Many in the German banking sector are facing difficulties.
Commerzbank, the country’s second biggest lender, saw its shares fall on Tuesday on reports it plans to cut around 9,000 jobs – nearly 20 percent of its workforce – over the next few years and will not pay a dividend to its shareholders this year.
The revamp is expected to cost around one billion euros, Reuters reported citing a person close to the bank’s supervisory board.
Chief Executive Martin Zielke is due to present the plan to Commerzbank’s supervisory board this week and expects to unveil it publicly on Friday.
Following a bailout in 2009 the German state currently owns 15.6 percent of Commerzbank, reduced from its previous 25 percent stake.
Deutsche Bank’s shares have fallen by more than half since the start of the year, while Commerzbank is down almost 40 percent.