Deutsche Bank opts not to call Tier 1 bond
Tue Jun 2, 2009 10:45am EDT
* Will not redeem $650 mln bond at end-June call date
* Bank says market did not expect bond to be called.
* Analysts cite high cost of refinancing
* Follows a similar move in December
(Adds analyst comment)
FRANKFURT/LONDON, June 2 (Reuters) - Germany's top lender, Deutsche Bank AG (DBKGn.DE), said it would not redeem a $650 million Tier 1 hybrid bond at its end-June call date, which analysts said was expected given the high cost of replacing it.
Deutsche Bank surprised the market in mid-December when it was the first big bank to say it would not redeem a subordinated bond -- 1 billion euros of Lower Tier 2 bonds due January 2014. The move led to a sharp widening in subordinated bank bonds across Europe.
Credit analysts at Royal Bank of Scotland said in a note that Deutsche Bank could not currently issue replacement Tier 1 capital at anything like economic levels.
Deciding not to call is "a manifestly logical course of action for issuers to take, especially in the context of having capacity to issue economic replacement capital," they added.
This week's similar decision came as no great surprise, said Jeroen van den Broek, head of investment grade credit strategy at ING.
A Deutsche Bank spokesman would not comment on whether the bank would continue to skip opportunities to call the bond, a perpetual issue with a coupon of 7.872 percent <DE009785434=RRPS>.
The spokesman said the fact this instrument was trading below par showed the market did not expect it to be called.
The statement that this is cheap capital and the market expected it is "not a particularly investor-friendly way of doing things", van den Broek said.
It may be a long time before Deutsche Bank returns to the Tier 1 market to raise financing, and then it may have to pay a premium over similar banks to attract investors, he said.
Rabobank Nederland NV last week tapped the Tier 1 market, paying 11 percent to sell $1.5 billion in perpetual notes.
"If a name like Rabobank paid 11 percent, it is going to take Deutsche Bank a long time to reach Rabo's level," van den Broek said.
(Reporting by Philipp Halstrick in Frankfurt and Jane Baird in London; Writing by Michael Shields; editing by Simon Jessop)