Bond Buyback at Deutsche Bank

Abstract

The case describes a 2016 debt buyback transaction for Deutsche Bank, a major, global, systemically important bank. The case focuses on the large, global bank during a turbulent period, giving students the opportunity to consider both the specific issue of whether Deutsche Bank should do a debt buyback as well as the strategic, regulatory, and macroeconomic issues the bank was facing. This case is suitable for an MBA elective course in capital markets, financial institutions or financial strategy. It is also suitable to be taught at an EMBA or GEMBA program.

Excerpt

UVA-F-1790

Rev. Mar. 30, 2017

Bond Buyback at Deutsche Bank

It's hard to stand up and smile a lot and give much of a vision…We're a bank, we're a regulated entity, we don't have much latitude in what we do.

— John Cryan, CEO Deutsche Bank

By any standard, the health of the financial sector in the opening months of 2016 had global investors jittery. They were concerned about the prospects of global growth, valuations in financial markets, and the potential of a hard landing of the Chinese economy. The markets sold off significantly in one of the few corrections (a 10% move lower) of the seven-year bull market that had begun in 2009. By mid-February of 2016, U.S., European, and Asian stocks were down over 10%. At the same time, investors began buying bonds, which led to a dramatic decline in yields. In addition, central banks, reluctant to raise interest rates, kept them low. By early February, the U.S. 10-year Treasury bond yielded 1.63%, down sharply from 2.24% at the beginning of the year. In the midst of this sell-off, financial sector stocks were one of the hardest hit.

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Keywords: Coco bonds, Basel, debt, regulatory, contingent convertible bonds, liquidity, cost of capital, credit rating, equity