How to screw your clients – Deutsche Bank “Aktienanleihe” edition (WKN DX2UZZ)

From time to time I use the blog to look at some “grey market” stuff, usually from obscure issuers with a very bad risk/return relationship. Examples were Prokon, WGF or Solar Millenium.

However, one should not forget that the established financial institutions are also “capable” to screw their clients over and over.

Let’s, for example, look at a currently marketed “Aktienanleihe” from Deutsch Bank with the WKN DX2UZZ.

The paper flyer comes with the slogan “Sichern Sie sich einen attraktiven Zinssatz” (meaning: secure your attractive yield right now) and a big 7% sticker.

On the second page you see “7 % interest p.a and repayment at 23.10.2012”. Then in fine print on the left side you see something like “In times of low interest rates, “Aktienanleihen” (direct translation “Stockbonds”) offer an interesting alternative with an attractive coupon but higher risk bla bla bla…”

So this is clearly a case where the bank tries to sell a quite risky investment based on a coupon which looks attractive on a nominal basis.

So let’s look at what this particular “investment” is about:

An “Aktienanleihe” is a structured bond which has the following features:

– you get a fixed coupon
– the repayment depends on the value of an underlying share
– in this case, the underlying share is interestingly the Deutsche Bank share itself
– if, at maturity, the share is below a certain level (here only a range is indicated from 60%-70%), you don’t get your money back, but you will receive the shares at the lower value

In sales speak this is sold as “Your coupon is secure plus you have a (30-40%) buffer before you loose money”.

Where is the problem ?

I do not know where the Deutsche Bank share price will be in one year’s time, but other than the Prokon and WGF securities, here the underlying is a traded security which means that the structured security can be modeled and valued.

Analytically, in a first step one has to slice the security into the funded part, a 1 year Deutsch bank unsecured senior bond and the “structure”.

We can easily find on Bloomberg the “fair price” for a 1 year Deutsche Bank Senior bond: Thats 0.65% for the Euribor plus 0.45% 1 year senior Deutsche spread. So a plain vanilla 1 year Deutsche Bond would yield 1,1%.

Now comes the tricky part: How to value the structure ? Without going into option pricing theory, I can tell you that the structure is basically the following “exotic option” of the following type:

“Short put with terminal knock-in feature”, meaning you, as buyer of the security are selling Deutsche Bank a put option on their own share.

Luckily, if you have a Bloomberg, you can very easily price this “beauty” with their standard option valuation tool. Please see the screenshot (i used 70%) :

What we see is that the standard valuation tool says you should receive 10% (of nominal) if you are selling such an option. Add on the 1.1% for the “plain vanilla” bond, then the “fair” value of the coupon would be 11.1% not 7%.

Why bother might some people say, 7% is better than 1% and the probability of the Deutsche Bank share going down so much is probably not so big. The problem is: Deutsch eBank takes out almost 40% of the “Fair value”. No one knows the probability, but there is a market for this kind of risk.

Deutsch Bank can easily hedge their part and directly pocket the 4% at the moment when they sell this “beauty” to the German retail investor. Although they have to share their “harvest” with the distribution partners.

For the “little investor” this is bad, because a large share of his “expected” return is taken out by the bank, which means simply on average he will loose money with this if he invests in such products.

I don’t even want to mention all the other issues like “asynchron information” if the issuer of the security is also the issuer of the underlying. There are a couple of more possibilities to screw the investor because off this.


This Deutsche bank “security” in my opinion represents everything which is wrong with the financial system. The banks still try to sell complicated stuff to investors who don’t understand it and cut out fat fees in order to make sure the little guy looses over time.

In my opnion, the banks should have to disclose at least the “fair value” of such securiteis based on available standard models so that teh invetsor knows what amount Deutsche is earning upfront. The current disclosure would indicate that they only charge 1% addional issuing fee.

However I guess I will not see in my lifetime that banks will offer “fair products” to little investors unless they are forced too. Maybe the little guys do have to share the blame by being too greedy (or desperate), but Deutsche Bank knows exactly what they are doing.


  • Agree with martin… there should be at least a few things taught to everyone in school:

    – the present value equation
    – pros and more importantly cons of debt/leverage
    – brief history of finance, including crisis and the historic performance of various indices

  • I don’t complain about offerings such as this product. But I bemoan that no finance is taught in German schools. If there were only educated customers, no one would buy…

  • Very good analysis. You might forward it to our “tough” Mr. Steinbrück, who will surely, after having pocketed his speaker fees from DB, make sure the little guys won’t get screwed anymore…
    FWIW, I would entirely abolish all of the complex options, certificates etc. like we have them here in Germany. The whole system only creates another layer on top of the standardized anglosaxon put/call options with the simple goal to triple profits: profits from the incomprehensible structure, profits from trade spreads, profits from the fact that investors are effectively lending their money to the banks themselves.

  • 1. The bank sells you a funny paper/digital product for Euro x which has the value x-y. They immediatly hedge the deal and keep y as their profit.
    2. The milkman sells you a bottle of milk for Euro 1 which he purchased for Euro 0,8. He keeps 20 cents profit.

    What is the difference? In the second case you are distributing some life essential things and for that service you pay the milkman. In the second case you sell some virtual product with its only relevance to grant profit for the seller. With that profit you pay high-income people who create products which nobody needs. Capitalism and its money-system have transformed into a somehow perverted system who reward the wrong people. Your “Aktieneanleihe” is only a litle mosaic of the whole bullshit game. The complete banking system would need an overhaul.

    Is it justified that the Aktienanleihe-creater earns 10 times more than the milkman? We should organice a demonstration with your nice and easy to understand example and build some big displays

    “More reward for the milkman!!!”

    ….just my opinion.



    • good comparison. The even better example would be “Analogkäse”. Someone is selling you something (High coupon) but in fact it is an invetsment of very low quality.

      • I even would prefer Analogkäse compared with Aktienanleihe. 😉

        I just would like to clarify one thing…I am an capitalist and not an communist. I only would like to cut a little bit of the weed and excesses which arised in the last 10 or 15 years. The intelligence of the Aktienanleihe-creators would be much more pruductive for the society in “real world/industry” sectors.

  • …and an Aktienanleihe is a very, very basic securitized derivative. Bootstrapping more complexe ones (“touch-down airbag discount knock-out quanto”) on some esoteric asset like volatility indexes can get you to embedded costs of 15% p.a. or more.

  • He thinks about buying the Aktienanleihe and hedging it with puts.

    • Ok thanks.

      Well, the 30-40% out of the money puts only start paying out much later than your sold option.

      The problem is you are selling an at-the-money option with an out-of-the-money trigger. So if the shares drop 50%, you loose 50% on the “Aktienanleihe” and only get 20% out of the long put. So all in all a 30% loss.

      So no free lunch here, nope.

      That’s why I think such stuff should not be sold to retail investors because it is quite tricky to understand.


  • Why not by puts on DB that are 30-40% out of the money? You get ~5 – 5.5% after emission fees and the expenses related to building the hedge (the options are cheap as they are very far out of the money). As you hedge any downside risk away, these 5% become virtually risk free. In fact, your return profile actualy improves significantly if DB shares go towards zero. Depending on your borrowing cost, you could seriously leverage this position, as it is virtually risk free. What am I missing here?

  • Thanks for this article. Although I do have problems with options’ pricing, I can see the theoratical point you make. I always wondered how these ‘Aktienanleihen’ work.


    • theoretical of course.
      with ‘how they work’, I meant: how the bank earns money, when you’re getting such a high coupon… I was always skeptical – this article shows that being skeptical is good.

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