There was no mistaking Nicolas Moreau's relief as he rang the traditional opening bell on the floor of the Frankfurt Stock Exchange. The boss of DWS, Deutsche Bank's asset-management subsidiary, beamed as he watched the company’s IPO debut slightly above its issue price, even as market nerves jangled over the prospects of an escalating trade war with the US. Nearly three times oversubscribed, the IPO, one of Germany’s biggest this year, raised €1.4 billion ($1.7 billion).
But the celebration was overshadowed by a gloom over developments at its teetering parent. Deutsche Bank’s stock price tumbled as much as 5 percent on Friday, its third straight day of declines, to the lowest level in 18 months. Since the beginning of the year, its value has fallen by about 30 percent. The reasons include investors' fears of a weak first quarter and fresh doubts about the viability of Deutsche’s business model. Some analysts, including those at Citigroup, predict the share will slide even further.
Deutsche Bank had hoped to earn more from its darling spinoff.
Given this dark backdrop, the long-anticipated listing of nearly a quarter of DWS’s equity must be considered a success. Demand for the IPO was boosted by a €250 million order by Paris-based asset manager Tikehau Capital, and a €65 million order by Japanese insurer Nippon Life, through whom DWS plans to boost its presence in Asia.
But this cannot hide the fact that Deutsche Bank had hoped to earn more from its darling spinoff. Expectations were ratcheted down several times. As recently as last month, Deutsche had reckoned the stock listing would bring in €2 billion. The issue price, €32.50, was towards the lower end of the targeted range of €30 to €36. DWS had originally planned to sell 25 percent of its equity, but reduced the amount on offer to 22.5 percent, presumably to tweak demand from investors.
Internal calculations at Germany’s largest bank had estimated the entire value of DWS at as much as €8 billion, but based on the IPO placement price, DWS is worth only €6.5 billion. As Deutsche Bank’s balance sheet lists €6.4 billion, the bank will make a modest profit of €100 million from the IPO — a small consolation for the parent bank, which urgently needs a success story to regain investor confidence.
Deutsche will make a mere €100 million book profit on the DWS stock listing — a small consolation for the troubled parent bank.
Doubts about the strategy of Deutsche Bank are considerable. John Cryan, its beleaguered CEO, wants to streamline the bank but is bent on keeping investment banking at its core, even as revenue prospects in this sector continue to crumble. Income and commissions from trading in bonds, foreign exchange and derivatives — the bread and butter of investment banks — have nearly halved at Deutsche since 2011.
Long-suffering shareholders of Germany’s biggest bank want to finally see some fruit from Mr. Cryan’s restructuring. But earlier this week the bank’s finance chief, James von Moltke, startled investors with a warning about recent developments, including high refinancing costs stemming from the dollar’s decline against the euro. Mr. Moreau, the DWS boss, would be forgiven for seeing their successful IPO as an opportunity to distance the unit from the mother ship.
Michael Maisch heads Handelsblatt's finance desk while Julia Rothenberger covers investment, both from Frankfurt. Jeremy Gray is an editor for Handelsblatt Global in Berlin. To contact the authors: [email protected], [email protected]