Deutsche Burdened By High Interest Rate Payments


Deutsche Bank is now paying the highest financing rates on the euro debt market as compared to other major financial institutions, which could lead to a loss of transactions with some of its biggest clients.

“Deutsche has to pay significantly higher risk premiums than almost all other large European banks . . . [the] high spreads express severe doubts, mainly triggered by its poor revenue,” said Michael Hünseler, head of credit portfolio management at Assenagon, according to The Financial Times.

Last week, the bank sold €3.6 billion in debt, paying 180 basis points over the benchmark for a two-year bond. In addition, the German financial institution spent 230bp over the standard on a seven-year bond, which is more than Spanish lender CaixaBank, which just raised five-year bonds at 225bp.

Barclays analyst Amit Goel added in a report that the bank could also see a 35 percent cut to its pre-tax profit.

In the meantime, Deutsche executives said they have been working to boost the bank’s standing in the debt markets. “A key priority for us now is lowering our funding costs and improving our credit ratings,” chief financial officer James von Moltke told investors and analysts last week.

The bank, however, could face some major changes, as German regulators recently said they would support combining Deutsche and Commerzbank to create one banking giant. German Finance Minister Olaf Scholz and the Social Democratic Party have been major supporters of the merger, with both banks struggling to make investors happy. Commerzbank ended last year down 54 percent, while Deutsche Bank’s stock fell 56 percent.

“This is a decision about industrial policy and it has to be made by politicians,” the regulator said, adding that Chancellor Angela Merkel’s conservatives are also in support of the idea of a merger.

But Deutsche’s chief executive Christian Sewing reportedly wants more time to fix the bank’s financing problems before a merger is seriously considered.