Ben Chu: Deutsche's capital gains

  • @Benchu_

Outlook Bank shareholders don't like capital issuances. Investors simply won't buy the equity. That's, at any rate, what we're often told by banks' management teams, as they complain about regulators' demands for them to build up their safety buffers.

But events at Deutsche Bank this week have been rather inconvenient for this line of argument. The thinly-capitalised German financial behemoth has raised €2.96bn in equity, increasing the share float by around 10 per cent. Yet, far from tanking, Deutsche Bank shares shot up 6.1 per cent in response.

Investors apparently feel that a decently capitalised Deutsche Bank is worth more than a bank that could be wiped out by relatively small losses on its loan book.

Perhaps it's bank managers, rather than bank shareholders, who have a problem with issuing capital. Could it be because their own bonuses are linked to their institution's return on equity? A thought to bear in mind next time the bleating starts.