Deutsche AT1s trade up after announcement on payment capacity

By Will Caiger-Smith

NEW YORK, Feb 8 (IFR) - Deutsche Bank (Other OTC: DBAGF - news) 's Additional Tier 1 bonds traded up half a point on Monday after the bank issued a statement to reassure investors it had enough cash to pay coupons.

Deutsche said late on Monday it had 1bn (US$1.12bn) to pay AT1 coupons in 2016.

The bonds were still trading at hefty discounts to par, bid at dollar prices of between 73 and 91, and remained down between 1.5 and six points on the day.

On Monday, Deutsche also said its pro-forma 2017 payment capacity was around 4.3bn (US$4.8bn), but said the final figure would depend on its 2016 operating results and movements in other reserves.

It made the statement after the close of European markets on a day when its bonds and shares were hit hard.

The notes have been in a freefall since Deutsche reported its Q4 results on January 28, with investors concerned the bank did not have a big enough cash buffer to pay the coupons.

Deutsche's shares slumped 9.5% to close at 13.82, after falling as low as 13.46, their lowest level since January 2009.

While the announcement helped stem selling in the AT1 bonds, market participants said the fact the bank felt it necessary to release the information was not a good sign.

"Banks are built reputationally on confidence and strength," said a DCM (KSE: 024090.KS - news) banker. "The fact this was required is very telling."

Deutsche Bank's shares have crashed 39% this year amid concern new CEO John Cryan will need to raise capital again to strengthen the bank's balance sheet as it gets battered by litigation costs and weak trading.

Fourth quarter results for its investment bank were also far weaker than at its US rivals.

On Monday, shares of Santander and UniCredit (EUREX: DE000A163206.EX - news) also fell 5% and Barclays (LSE: BARC.L - news) and BNP Paribas (Xetra: 887771 - news) were both down 5%, as the European index lost 5.6%.

Analysts said concerns about losses from energy loans, the negative impact of low interest rates and a gloomy outlook for the European economy were all negatives weighing on sentiment.

Weak results from European lenders had also stoked concern the industry is structurally unprofitable, and will remain so for years to come. (Reporting by Will Caiger-Smith; Editing by Steven Slater and Shankar Ramakrishnan)