Weekly Market Outlook

Deutsche Bank to Take $895 Million Hit on Abbey Life Unit Sale

Deutsche Bank AG said it will book a pretax loss of about 800 million euros ($895 million) from the sale of its U.K. insurance unit Abbey Life Assurance Co. to Phoenix Group Holdings.

Phoenix will pay 935 million pounds ($1.2 billion) for the unit, boosting the German lender’s Common Equity Tier 1 capital ratio by about 10 basis points from the June 30 level, according to a Deutsche Bank statement. Phoenix, a U.K. consolidator of closed-life insurance businesses, plans to raise about 735 million pounds in stock to help fund the purchase, along with a 250 million-pound banking facility, it said Wednesday.

“This attractively-priced deal meets precisely Phoenix’s areas of strategic focus and stated acquisition criteria, whilst significantly increasing our cash generation and supporting a further increase in our proposed dividend,” Phoenix Chief Executive Officer Clive Bannister said in the statement.

Deutsche Bank CEO John Cryan has been under pressure to shore up earnings and bolster buffers at the German lender. Mounting legal bills have led analysts to question the bank’s ability to avoid selling assets or taking other steps to raise capital. The lender has put a planned initial public offering of its German Postbank consumer division on hold, with Cryan citing market conditions as one of the reasons. The CEO earlier this month told staff that the asset-management business will remain an “essential part” of the bank, responding to media reports of a potential sale.

“The dimension of the Abbey deal is too small really to help Deutsche Bank materially in getting out of trouble,” said Christoph Kaserer, a professor and head of the department of financial management and capital markets at Munich’s Technische Universitaet. “A sale of Deutsche Postbank would rather be the positive news that everybody is waiting for, or a real reduction of salaries or obviously a successful capital increase.”

The debate over the bank’s finances intensified after it was disclosed this month that the U.S. Justice Department is seeking $14 billion to resolve a long-running probe of the lender’s pre-crisis mortgage securities business. Deutsche Bank said it expects to negotiate a “materially” smaller settlement, as has been the case for other banks investigated.

Still, the anxiety has weighed on shares, which hit a record low Monday, as the bank sought to convince investors that it doesn’t need a government bailout. The shares were up 3.2 percent to 10.89 euros by 9:56 a.m. in Frankfurt. Phoenix shares were up 2.9 percent to 863 pence in London.

Bannister, who has focused on cutting costs and debt since he joined in 2011, bought Axa SA’s U.K. pension and protection business earlier this year for 375 million pounds, partly funded through a share placement. Swiss Re AG and Britain’s Legal & General Group Plc were among several firms considering bids for Abbey Life, people familiar with the matter had said in April.