How to raise capital – Deutsche Bank edition

In a surprise move, yesterday after the close of the stock market, Deutsche Bank announced that the increase their capital by ~2.8 bn.

For this they used the possibility of selling up to 10% of new shares without granting rights to the old shareholders.

So this would be the perfect case for the “formula” I mentioned yesterday:

Equilibrium Price = (price pre-cap raising announcement x # shares + price cap raising x # shares) / total # shares

The closing price of Deutsch Bank was 33.60 EUR. The price for the new shares 32.90 EUR. Outstanding shares were 929 mn, new shares 90 mn.

So the “Equilibrium Price” should have been:

(33.60 * 929 + 32.90 * 90)/ 1019 = 33.53 EUR per share.

Reality check: The stock actually opened around 33.50 but is now up +7.5% at ~35.40 EUR.

Learning experience:

The stock market is full of surprises. For some reason, the capital market considers it as extremely positive that Deutsche Bank increases its share count by 10%. I don’t know why.

And: Don’t rely on formulas…….

4 comments

  • Sehr gute Erklärung. Vielen Dank dafür.

  • Because Deutsche is clearly not run for minority retail shareholders.

  • Deutsche also announced much stronger than expected numbers together with share increase.

    So, judging from the share price today those 10% were sold at a steep discount. The negative effect, however, was more than offset by the positive numbers’ impact.

    I wonder why Deutsche did not wait until after the earnings announcement and then offered to sell the shares for 34+ to all of its current shareholders…

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