- Capital increase supports strategic reorganization
- More private shareholders
- Demanding market environment for bonds
Following a weak year-end to 2015 the international stock exchanges continued their modest performance at the beginning of 2016. This development was driven largely by the global economic situation and the uncertainty around the future monetary policy stance of the central banks. By mid-February, all the major stock market indices were down significantly; the DAX, for instance, fell by around 19 % below 9,000 points. Bank stocks were hit even harder; the STOXX Europe 600 Banks suffered a setback of 29 %. In this environment the Deutsche Bank share fell by more than the average. Following the publication of the 2015 full-year results, fixed-income investors in particular expressed their concern about the Bank’s ability to pay the coupons on its AT1 bonds. The slump in bond prices had a negative impact on the share price, with the Deutsche Bank share down 41 % from the start of the year to its low for the quarter of € 13.23 on 9 February 2016. In the second quarter additional pressure built on the stock markets due to the referendum on the UK’s membership of the European Union. The DAX retreated by 10 % in the first half of 2016; the decline in the STOXX Europe 600 Banks over the same period was again much steeper at 31 %. The Deutsche Bank share traded some 45 % lower at the end of the first six months of the year. In the third quarter, European stock indices rallied slightly. While the DAX managed to recover from its first-half losses during the third quarter, the performance of bank stocks remained negative. The STOXX Europe 600 Banks was able to curtail its losses slightly, but it still closed the third quarter down by 23 % compared with year-end 2015. While the Deutsche Bank share initially also managed to make good some of its losses from the first half-year, on 30 September the share price fell to its lowest point for the year of € 9.90 (intraday). The share closed at € 11.57 at the end of the day and thus at the end of the third quarter, a decline of 49 % compared to the beginning of the year. This significant drop in the share price in the second half of September resulted from the uncertainty surrounding the then unresolved litigation cases. The election victory of Donald Trump in the USA sent U.S. markets and above all bank stocks soaring in early November. The STOXX Europe 600 Banks also benefited from expectations of banking deregulation. Since then the index rose steadily and closed 2016 down by just 7 %. The announcement in early December of the extension of the ECB’s bond purchasing programme led to renewed price gains, with the result that the DAX closed 2016 up 7 % compared to the end of 2015. The Deutsche Bank share also benefited from the general market environment and managed to recoup some of its losses especially during the last two months of 2016. The share ended the year 23 % lower at € 17.25.
Strategy – Important milestones have been reached
In the year under review, Deutsche Bank made good progress in implementing its strategic agenda. Savings generated by the cost reduction program became visible and also the reduction in complexity within the Group is yielding positive effects. The accelerated wind-down of the Non-Core Operations Unit contributed to the considerable reduction in risk-weighted assets. Reducing legal risks remained a high priority. Changes in the operating environment and the challenges specific to Deutsche Bank led to a strategic review in early 2017. The management decided to undertake a number of new steps to further strengthen the bank and place it in a better position to pursue growth opportunities. This strategic reorganization is supported by a capital increase. Through this step, Deutsche Bank plans to reach a Common Equity Tier 1 capital ratio of approximately 14 % (fully loaded, pro forma as of December 31, 2016). The Management Board and the Supervisory Board intend to propose at the Annual General Meeting in May 2017 to pay aggregate dividends of € 0.19 per share.
Market capitalization decreased
Deutsche Bank’s market capitalization at the end of 2016 was € 23.8 billion, approximately € 7.3 billion less than a year before. Chart 1–1 On average, 13.2 million Deutsche Bank shares were traded daily on Xetra, up 5.4 million on the previous year. The Xetra trading volume in Deutsche Bank shares in 2016 was € 48.4 billion (single counting), down by € 5.4 billion on 2015. The ratio in Xetra share trading was 13.7 % (basis differs from previous years due to a change in DAX-listed companies), compared with 8.0 % in 2015. Deutsche Bank’s share was thus the most actively traded DAX security (2015: no. 4). Its share weighting in the DAX was 2.5 % (2015: 3.5 %). On the New York Stock Exchange, where the Deutsche Bank share has been listed since 2001, the average number of shares per day traded rose by 4.1 million compared with the previous year to 6.2 million shares.
The substantial decline in the share price in 2016 reduced the long-term total shareholder return. An investor who bought Deutsche Bank shares for € 10,000 at the start of 2012, reinvested dividends and subscribed to capital increases without injecting additional funds would have held a portfolio worth € 6,776 at the end of 2015. This corresponds to an average annual loss of 7.5 % per year. For the STOXX Europe 600 Banks, an annual increase of 8.6 % was recorded for the same period; the DAX 30 recorded a plus of 14.2 %.
More private investors, four large shareholders
Deutsche Bank shares continue to be almost entirely in free float. Around 99 % of the bank’s shareholders in 2016 were private investors. At the end of 2016, retail investors held 23 % (2015: 19 %) of the share capital, while institutional investors held 77 % (2015: 81 %) of the subscribed capital of € 3,530,939,215.36.
Deutsche Bank has four large shareholders whose holdings are above the statutory reporting threshold of 3 %. BlackRock Inc., Wilmington, has the largest holding of 5.95 %. Paramount Services Holdings Ltd., British Virgin Islands, and Supreme Universal Holdings Ltd., Cayman Islands, each hold 3.05 %. Hainan Jiaoguan Holding Co., Ltd., Haikou, has notified us that as of February 15, 2017, it holds 3.04 % of our shares.
The number of shareholders increased in 2016 to 598,122 (2015: 561,559). This reflects an increase in the number of private shareholders in the reporting year. The regional distribution of share capital shifted again in favor of the USA. According to the share register, the share capital held in Germany remained unchanged at 56 % compared to 2015. So did the percentage held in Switzerland (4 %). The percentage held in the European Union excluding Germany declined to 20 % (2015: 22 %); the percentage held in the rest of the world declined to 1 % (2015: 3 %). The percentage of share capital held in the USA rose the second year in succession, reaching 18 % (2015: 15 %). Chart 1–2 The regional distribution of share ownership is based on share custody locations, which are not necessarily the shareholders’ places of residence.
Share buybacks for compensation plans
The General Meeting in 2016 granted the Management Board the authorization to buy back up to 10 % of the share capital (137.9 million shares) by the end of April 2021. A maximum of 5 % of the share capital (69.0 million shares) can be purchased using derivatives. These authorizations replaced the authorizations of the 2015 General Meeting. During the period between the 2016 General Meeting and December 31, 2016, 0.9 million shares were bought back. The shares purchased were used for equity compensation purposes. As of December 31, 2016, no shares were held from buybacks.
Solid demand for Deutsche Bank’s debt
Despite the issues Deutsche Bank was facing in 2016, the bank enjoyed strong support from debt investors allowing refinancing at reasonable spreads. In 2016, Deutsche Bank issued a total of € 31.8 billion in debt instruments at an average spread of 129 bps over 3-months-EURIBOR (all non-Euro funding spreads are rebased versus 3-months EURIBOR) and an average tenor of 6.7 years. Of the total, € 17 billion were benchmark issuances, meeting certain minimum size requirements and a further € 14.8 billion were raised by private placements with institutional investors and retail-targeted issuance. See section in the Management Report on Credit Ratings.
The most significant transactions in 2016 included a € 1.6 billion senior unsecured issuance in March 2016 with a maturity of 3 years. Two other significant transactions were a € 0.75 billion Tier 2 issuance with a maturity of 10 years issued in May and a U.S. $ 4.5 billion senior unsecured benchmark with a tenor of 5 years issued in October.
Overall, Deutsche Bank’s issuance activities are well diversified across markets, instruments, currencies and investor types. At the end of December 2016, 72 % of the bank’s total funding comes from the most stable funding sources, such as retail and transaction banking deposits, capital markets issuance and equity.