Deutsche Bank Bond Buyers Return for More of Its Junk-Like Yield (290 BP Premium)

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Germany’s largest bank, Deutsche Bank, is in danger of sinking (like the battleship Bismarck).

Bloomberg — Investors piled into Deutsche Bank’s latest bond sale, seeking a second helping of notes sold less than a week ago at yields resembling junk debt.

The German lender sold another $1.5 billion of investment-grade notes on Tuesday to mostly the same investors who bought last week’s $3 billion private deal, according to a person with knowledge of the matter, who asked not to be identified because the information isn’t public. The deal was priced at a premium of 290 basis points, close to the average of 300 basis points for highly-rated junk debt in dollars and more than twice the 143 basis points Deutsche Bank paid for similar notes in August 2015, data compiled by Bloomberg show.

The notes were Deutsche Bank’s first since the U.S. Justice Department demanded $14 billion to settle claims that it misled investors over mortgage-backed securities before the American housing crisis. The claim has fueled concerns about the lender’s financial health and pushed its share price down more than 45 percent this year.

“The private debt sale shows they can still access the market for sizable term funding,” said Ben Sy, head of fixed income, currencies and commodities at the private banking arm of JPMorgan Chase & Co. in Hong Kong. Even so, “it has to pay a significant premium and that may shake confidence among investors,” he said.

Amy Chang, a media relations officer at Deutsche Bank in Hong Kong, said in an e-mail that she couldn’t immediately comment.

The bonds will become more vulnerable to losses from Jan. 1, when a German law takes effect that subordinates existing notes to deposits, derivatives and structured notes. Senior bonds could be bailed in if post-tax losses exceed 20 billion euros or if some lower-ranking bonds don’t provide a cushion because they’re not governed by EU law, Hank Calenti, an analyst at Wells Fargo & Co. in London, wrote in a note to clients.

Issuing bonds that yield only 10 basis points below junk? This is NOT a good sign.

dbjunk

Let’s see if Deutsche Bank detaches the Prinz Eugen before sinking.

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