Deutsche Bank dashes back to bond market

October 12, 2016 11:40 AM

Deutsche Bank made a rapid-fire return to the United States high-grade bond market on Tuesday, satisfying investor demand by tapping last week's $3 billion deal for another $1.5 billion in fresh cash.

Investors who bought into Friday's deal were clamoring for more, leading the bank to sell new debt for the second straight session—and show it still has significant access to funding.

Deutsche's bond spreads have been under pressure since September, when the U.S. Department of Justice asked the bank to pay $14 billion to settle an investigation into its selling of mortgage-bond securities.

But after raising $4.5 billion over two days, both times from reverse inquiry, the bank instilled some confidence that it is making progress in putting some problems behind it.

"If they are able to take $4.5 billion out, this shows there is clearly demand for the name if there is adequate compensation," one syndicate banker told IFR.

Deutsche paid a new issue concession of around 50bp on Friday's deal, which was a chunky premium compared to its outstanding bonds.

But it was broadly in line with where its paper was trading after the sell-off occasioned by the DoJ request.

Tuesday's self-led tap of its 4.25% October 2021s priced at 100.263 and a spread of 290bp over Treasuries for a yield of 4.191%, offering investors a premium of around 25bp.

The bond that priced Friday, which was sold to a limited number of investors, had rallied by up to 40bp in secondary markets after clearing at 300bp over Treasuries.

Many of the same investors bought in again on Tuesday. Friday's deal was the first Deutsche Bank had sold in the U.S. dollar market in five months.

Proceeds will be used for general corporate purposes. 

The bank had only a limited amount of time to sell new debt before it enters its earnings blackout period. 

For that reason, sources told IFR, Deutsche opted to issue bonds in a 144A for life format rather than an SEC-registered deal that would have required more documentation and time to prepare.

In any event, more than one market participant told IFR that Deutsche had perhaps paid too much to get the new deals done.

Several noted that Deutsche Bank has ample liquidity, a message that CEO John Cryan drove home in a letter to staff last month.

"We should look at the complete picture," Cryan said, indicating the bank has more than 20 million customers—and reserves of more than 215 billion euros (USD $237bn).

"In a situation like this, the most important factor is our liquidity reserves."

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