Deutsche Bank CEO Josef Ackermann has long wanted to expand his consumer banking business to provide a steady source of earnings that would complement the group’s risk-prone investment bank. The financial crisis made that desire all the more urgent by accentuating the importance of having a strong retail deposit base. So when Deutsche Post put its banking arm, Deutsche Postbank, up for sale last month, Ackermann pounced.
In striking a deal that will allow it to take majority control of Postbank within three years, Deutsche Bank stands poised to create Germany’s largest consumer bank. Postbank will add 14.5 million retail customers to Deutsche’s 14 million. The postal bank has taken some lumps from the credit crisis — losses on securities holdings and a decline in trading profits caused a 20 percent drop in first-half earnings, to €235 million ($343 million) — but its performance has held up better than Deutsche’s, which posted an 87 percent drop in first-half net, to €504 million, after taking €5 billion in credit write-downs.
“We have always said that we wanted to strengthen the contribution from our stable businesses. This transaction gives us strategic options and a high degree of flexibility,” says Axel Wieandt, Deutsche’s head of corporate investments, who led the negotiations with CFO Stefan Krause.
Deutsche is paying a hefty price for its prize, though. The bank shelled out €2.79 billion, or €57.25 a share, for 29.75 percent of Postbank, a 25 percent premium to the market price and an estimated 2.2 times book value. By contrast, Commerzbank paid an estimated 1.0 to 1.4 times book value to acquire Dresdner Bank at the end of August. Deutsche also obtained an option to buy Deutsche Post’s remaining 20.25 percent plus one share stake in Postbank at €55.00 a share within the next 12 to 36 months, which would give it majority ownership. The bank financed the deal with a €2.2 billion secondary share issue priced at €55.00 a share.
The structure of the transaction was favorable for Deutsche, giving it effective control of Postbank but minimizing its initial outlay, a key factor in today’s turbulent market climate. The deal also gives Ackermann up to three years to figure out how to meld two vastly different cultures — Deutsche combines investment banking and high-end retail banking whereas Postbank has a mass-market clientele.
Postbank shareholders have reason to be less satisfied, though — the deal effectively eliminates any bid potential from the stock price. Indeed, Postbank shares slumped to €35.39 late last month. “Postbank shareholders are not thrilled by this deal because they bear all the risk and can no longer hope for any kind of a bonus,” says Robert Minde, a banking analyst at BHF Bank in Frankfurt.
Deutsche beat out a rival bid from Spain’s Banco Santander, which offered €53 a share for Deutsche Post’s 50 percent plus one share stake but made it conditional on carrying out due diligence, sources say. A Santander spokesman tell Institutional Investor that the bank “feels its offer provided better value for all Postbank shareholders, not just Deutsche Post.”
Not surprisingly, some analysts believe that nationality played a role in the contest. The German government is the largest shareholder in Deutsche Post, and officials have been eager to strengthen the country’s fragmented banking system for some time. Just before Postbank’s IPO in 2004, then-chancellor Gerhard Schröder had advocated selling the bank to Deutsche instead of floating it. The IPO went ahead, but Deutsche Post had to cut the price by roughly 10 percent after the leak of an internal memo from Deutsche Bank, one of the lead underwriters, that put a lower value on Postbank than initial marketing had suggested.
The transaction ends a flurry of consolidation that began in July, when France’s Crédit Mutuel paid €4.9 billion for Citigroup’s German retail subsidiary. “That put significant pressure on the incumbents, Deutsche and Commerzbank,” says one senior banker involved in the Postbank deal. With Deutsche and Commerzbank now standing out clearly at the top of the country’s banking industry, little is left for foreigners to buy.
