A US hedge fund has taken a 3.1 per cent stake in Deutsche Bank, in a bet that Germany’s largest lender will finally emerge from years of losses and turmoil.
Hudson Executive Capital, run by JPMorgan Chase’s former chief financial officer Doug Braunstein, has built a position worth about €550m, revealing the stake on Thursday after Deutsche’s shares hit an all-time low.
“This is quite a compelling opportunity,” said Mr Braunstein. “It’s been beaten up for so long, people have stopped really thinking about it in a fair way.”
Christian Sewing, who was appointed chief executive of Deutsche this year, welcomed the investment and noted Mr Braunstein’s “deep background in financial services companies”.
“We appreciate Hudson Executive’s confidence in our ability to execute on our strategic objectives,” said Mr Sewing, who was promoted to the job in April after his predecessor John Cryan was ousted.
Hudson’s investment was first reported by the Wall Street Journal.
The fund is now Deutsche’s fourth largest shareholder after Chinese conglomerate HNA, which holds a 7.6 per cent stake, two Qatari funds that own 6.1 per cent between them, and BlackRock, with 5 per cent.
Hudson’s stake is slightly larger than the 3 per cent one built by private equity group Cerberus a year ago.
Speaking to the Financial Times, Mr Braunstein did not rule out a further increase in the stake but said he hoped “that the stake grows in size because of the market movement”.
Deutsche’s shares, which slipped to an all-time low after disappointing quarterly results last month, rose 3 per cent in midday trading in Frankfurt.
Mr Braunstein, stepped down as CFO of JPMorgan in 2012, and started Hudson in 2015. The position in Deutsche comes as Matt Zames, another former senior executive at JPMorgan, is advising the bank on its restructuring.
In a written statement, the hedge fund stressed that it was backing Deutsche’s management team led by Mr Sewing and its strategy. It said that there was “significant long-term value in Deutsche Bank”, which it described as “well-capitalised and highly liquid”.
Hudson, which has spent more than a year analysing Deutsche’s strategic challenges, said that Mr Sewing was right in focusing the lender on its “traditional banking business” in retail and commercial banking, global transaction banking and asset management. Hudson described these areas as “steady, compounding, capital-light businesses”.
Talking to the FT, Mr Braunstein described himself as a “long-term investor” who is not overly focused on the performance over the next three to six months.
He suggested the shares could roughly triple within “several years”. He argued that Deutsche should be able to earn its cost of capital if Mr Sewing successfully executes his strategy. The shares “should trade at least at one times tangible book value”, which stands at €25.81 per share. “The stock is currently trading at a little under €9. If we can get to tangible book value, that’s a spectacular return.”
Mr Braunstein backed chairman Paul Achleitner, who was criticised harshly by many investors for his handling of the management crisis. “I know Paul quite well, and I think the best decision Paul has made is putting Christian into the job,” he said, adding that the management change was “the precondition” for his investment.
Mr Braunstein argued against a quick merger of Deutsche and Commerzbank — a deal many observers in Frankfurt regard as a question of when not if.
“There is so much opportunity today [for Deutsche] on a self-help basis that I want the management to focus on that,” he said, adding that a rising share price would then open new strategic options. “These things have to be taken in the right order,” stressed Mr Braunstein.
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