Postbank Buy Being Renegotiated Deutsche Bank Lets Government in Through Back Door

The German government may end up with an indirect stake in Deutsche Bank through a renegotiation of the bank's takeover of Postbank, according to media reports that coincide with news that Deutsche lost €4.8 billion in the fourth quarter.

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Deutsche Bank CEO Josef Ackermann is reported to be renegotiating the takeover of Postbank.

Deutsche Bank CEO Josef Ackermann is reported to be renegotiating the takeover of Postbank.

Deutsche Bank, Germany's biggest commercial bank, has renegotiated its planned takeover of retail bank Postbankin the wake of the financial crisis in a deal that will effectively give the German government a three percent stake in the fiercely private bank, German newspapers are reporting.

The new agreement currently being worked out falls far short of the partial nationalization of rival Commerzbankannounced last week, under which the government is taking a direct stake of 25 percent and will have the power to block all major corporate decisions.

But it's significant given that Deutsche Bank Chief Executive Josef Ackermann has insisted his bank can and will weather the financial crisis without help from the state. He even said he would be ashamed to take money from the government.

"The financial crisis is leading to a reorganization of the sector that would have been unfeasible until recently," said Hans-Peter Burghof, the head professor of the banking and finance department at Germany's Hohenheim University. One analyst said: "The state would in effect have a stake in one of the most private of Germany's private banks."

Deutsche Bank last September reached an agreement to purchase a 29.75 percent stake in Postbank for €57.25 per share in the first quarter of 2009 -- a total of €2.79 billion ($3.7 billion) -- in the first step towards a takeover. The price was regarded as high even at the time. "Deutsche Bank evidently expected that the financial crisis would soon be over," said Burghof.

But it was wrong. Shortly after the deal was signed, US investment bank Lehman Brothers went bust and financial stocks plummeted.

"The purchase turned out to be a big mistake. Today Deutsche Bank could buy Postbank for a fraction of that cost," said Burghof. At midday on Wednesday, Postbank shares were trading at just over €14.

That's why the deal is now being renegotiated. Business dailies Handelsblatt and Financial Times Deutschland reported on Wednesday that the new version was almost finished and envisages Deutsche Bank paying for part of the stake with its own shares.

It's a solution that reduces Deutsche's capital outlay at a time when capital is generally in short supply.

In return, German postal and logistics company Deutsche Post will get a stake of around 10 percent in Deutsche Bank. Deutsche Post is 31 percent-owned by the German government via state development bank KfW, so the government will effectively end up owning three percent of Deutsche Bank.

Ackermann Stands to Benefit From New Deal

The back-door entry by the government may suit Ackermann. His categoric refusal of state assistance in the financial crisis meant the mighty manager had to watch on as competitors around the world got shored up with public money. Ackermann risked suffering a classic competitive disadvantage, said one analyst.

With the new deal Ackermann could kill several birds with one stone. "It would be a face-saving compromise," said banking expert Wolfgang Gerke. The advantages would outweigh the embarrassment, he added.

The first tranche of Postbank shares will remain expensive for Deutsche Bank because there won't be a discount, the newspapers reported. But the Postbank shares won't change hands until the summer, which means that Deutsche Bank can wait until then to make a takeover offer for outstanding Postbank shares.

A Deutsche spokesman declined to comment on what he called "market speculation". "We're sticking to our investment in the first quarter," he said.

Deutsche Post too didn't want to comment: "We have an agreement with Deutsche Bank and we stand by that," a spokesman said. But he confirmed that Deutsche Post's supervisory board would discuss the deal at a meeting on Wednesday.

Deutsche Post has been trying to get rid of its Postbank unit for a long time, but had to increase its stake in the bank in recent months because of the financial crisis.

When the original deal was agreed in September, Deutsche Post had a 50 percent stake in Postbank. But the bank had to sell €1 billion of its own stock in November because of the crisis. Deutsche Post was the only possible buyer, and its stake rose to around 63 percent as a result.

Losses Mounting

Last week Postbank admitted that it fell deep into the red in 2008. Insiders speculate that it lost between €600 million and just under €1 billion. It's little wonder that banking experts such as Gerke think Ackermann should stop ruling out assistance from the government's financial sector stabilization fund.

No one knows what risks the Postbank takeover poses and how long the crisis will last.

Deutsche Bank on Wednesday reported a €4.8 billion loss in the fourth quarter, according to provisional results. Ackermann said he was "very disappointed."

"The extremely difficult market environment has revealed several weaknesses in the bank," Ackermann said in a statement. The losses stemmed in part from trading in credit products, equity derivatives and stocks, the bank said. Earnings were also hit by writedowns and restructuring costs.

Deutsche said it expects to post a net loss of €3.9 billion for the full year 2008. The final results will be presented on Feb. 5.


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