Clouds do have silver linings—even at
The German lender’s depressed stock price is likely to remain under pressure as one of its biggest shareholders, Chinese conglomerate HNA, prepares to sell its 7.6% stake, according to The Wall Street Journal.
But short-term pain should give way to a better longer-term foundation for the stock. HNA was always an unstable owner for the bank and there has long been a threat that its stake would be unloaded into the market.
Deutsche Bank’s shares are down more than 40% from this year’s peak in early January as its management fights to cut costs while not losing more revenue. While the company should hit its cost-cutting targets, retaining revenue is likely to be more of a problem: Its retail bank has limited growth and its investment bank is expected to lose further market share.
HNA was an unstable owner firstly because much of its stake was built with borrowed money and protected by derivatives contracts. The banks that structured the deal could always sell the shares they held as collateral if HNA couldn’t or wouldn’t repay the loans that funded its stake. Former Deutsche chief executive, John Cryan, was unhappy about HNA’s ownership for this reason.
The Chinese group’s long-term involvement became even more uncertain once it emerged last year that it was under growing pressure to sell many foreign assets acquired in an aggressive acquisition spree.
HNA has already cut its stake from near 10% to 7.6% by letting some of its derivatives contracts expire and allowing its bankers to sell the related Deutsche stock. According to The Wall Street Journal, its stake will fall to zero over time as more of these contracts mature and shares are sold by its lenders.
Like much else at Deutsche, this will be a slow grind. But in this case, at least, getting an unstable owner off the share register will definitely leave the bank in a better position.
Write to Paul J. Davies at [email protected]