NEW YORK/LONDON, Oct 14 (IFR) - Deutsche Bank's US$4.5bn
bond issue showed it still has market access amid its recent
turmoil, but the deal's steep price - and the way it was sold -
left many questioning the trade's rationale.
The struggling German lender, facing a US Department of
Justice fine of up to US$14bn, priced a US$3bn bond offering
late on Friday October 7 after many in the market had left for
the long weekend in the US.
It then returned in the very next session on Tuesday with a
US$1.5bn tap of the five-year trade, paying an apparently
unnecessary premium that some said smacked of desperation.
"They did show strength with the first US$3bn deal," one
senior banker told IFR. "But what I did not understand was the
necessity of the US$1.5bn tap, and the spreads at which [it was]
The original deal, which sources said was driven by reverse
enquiry, was priced at 300bp over Treasuries - a massive 50bp
premium to where Deutsche's bonds were trading at the time.
Yet even after the new deal rallied to 265bp in secondary
trade, Deutsche still priced the tap at 290bp - an eye-watering
25bp wide of the initial transaction.
If the idea was to show market access, the public relations
exercise looked to have gone rather wrong.
"It made less sense on Tuesday because of the way the bonds
were priced," a second banker said. "It now really looks like
they need the cash."
Sources at Deutsche, however, said the reason for the
execution was far simpler.
Investors were interested in new Deutsche paper, they said,
as the bank's spreads had widened close to 300bp after news
broke in September about the potential DoJ fine.
The first deal was sold after those enquiries, and many
buyers just came back for more, prompting Deutsche to tap the
Pimco was a major investor in both deals after approaching
Deutsche first, Reuters reported, citing a source familiar with
And while sources said proceeds were to be for general
corporate purposes, that could include helping the bank meet its
funding target for the year.
Deutsche was just two-thirds through its US$30bn
debt-raising target for 2016 by the end of June, and the new
deal gets it closer to the goal.
The bank also had only a limited amount of time to sell new
debt before it enters its earnings blackout period, with
third-quarter numbers due on October 27.
For that reason, sources said, Deutsche chose to issue in a
144A-for-life format, rather than an SEC-registered deal that
would have required more documentation and time to prepare.
Some rival bankers said this made sense.
"GCP could mean anything from terming out commercial paper
before new money market reforms become effective on October 14,
or preparing for the Justice Department's settlement,
balance sheet enforcement," said one senior banker.
"The deal is positive."
Still, both the pricing and execution left many in the
market wondering about some of the bank's decisions.
Some questioned why the 144A deal was not syndicated to the
broader market, where pricing may have been much more attractive
for the bank.
Even as a club-style deal sold to a closed group, the tap
could have cleared the market with a much smaller concession, if
And keeping such a premium-heavy deal behind closed doors
may well have left some buyside accounts disgruntled.
"They may find a lot of people that are pretty angry with
them - people who were out trying to buy their paper in
secondary who they didn't give an opportunity to buy either the
original deal or the tap," said Bill Hines, a senior trader at
Aberdeen Asset Management.
Meanwhile, rival bankers in London were surprised that
Deutsche was able to execute the bonds in the way it did without
breaching the European Union's Market Abuse Regulation, which
came into force over the summer and applies to all issuers with
securities listed on an EU exchange.
Indeed, some were sceptical that the deal's execution was
fully compliant with MAR, which contains strict rules on
so-called wall-crossing, or the selective disclosure of inside
"A lot of clients are asking about this deal," said one
London-based banker. "They are asking: how did they do that if
they didn't wall-cross?"
A spokesperson for Deutsche said: "We have policies and
procedures in place to ensure compliance with all applicable
regulations, including MAR."
(Reporting by Shankar Ramakrishnan and Will Caiger-Smith;
Additional reporting by Natalie Harrison and Alex Chambers;
Editing by Jack Doran and Marc Carnegie)