Deutsche Bank has reached an agreement to sell its Abbey Life insurance business to Phoenix Group for €1.09bn, in a move that will give a small boost to the German bank’s capital position.
The deal helped spur a rise in Deutsche’s shares Wednesday after hitting their lowest levels in more than two decades this week. The shares gained 3.2 per cent in early trading to €10.90.
The financial position of Germany’s biggest bank has been under scrutiny in recent weeks, after it emerged that the US Department of Justice had made an initial request of $14bn from Deutsche to settle allegations of mis-selling mortgage-backed securities.
Deutsche has said that it has no intention of paying anywhere near this sum, but the prospect of a big fine has sparked speculation about whether the bank could be forced into a capital raising, or even need a state bailout. Deutsche insisted on Monday that neither was on the agenda.
Deutsche said on Wednesday that the sale of Abbey Life would generate an €800m pre-tax loss, due to the impairment of goodwill and intangible assets.
However, it said that the sale would have improved its core tier one capital ratio — a measure of financial strength — by 10 basis points. Deutsche’s ratio stood at 10.8 per cent at the end of June, comfortably above the minimum required by regulators but well below many of its peers.
The bank also said that the loss on the sale was “not expected to have a material impact” on Deutsche’s so-called available distributable items, which determine the payment of coupons on some of its hybrid capital.
John Cryan, Deutsche’s chief executive, said that he was “pleased” to have reached an agreement to sell Abbey to a specialist life fund provider.
He added that Deutsche’s asset management arm would “continue to focus on its core businesses of active, passive and alternatives”. “We continue to build a simpler and better Deutsche Bank,” he said.