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Deutsche's Key Shareholder Reduces Stake, Plans Full Exit

Zacks Equity Research

Deutsche Bank AG’s DB largest shareholder, HNA Group Co., has again reduced its interest in the German lender to 6.3% from 7.64%, per a filing with the SEC. The Chinese conglomerate at one point held nearly 10% stake in Deutsche Bank.

Per an article by Bloomberg, HNA Group’s C-Quadrat unit exercised options to sell 26.8 million Deutsche Bank shares for €363.4 million ($410 million). The shares were sold at prices between €11.45 and €16.70 per share. The selling price came far above current market price, as the Chinese group had hedged its investment in Deutsche Bank with put options.

Furthermore, the article reported that HNA Group seeks to divest entire stake in the Deutsche Bank. The key reason behind the move isthe hugedebt burden of the Chinese conglomerate.  

In 2017, HNA Group had borrowed funds to acquire 10% stake in Deutsche Bank through Austrian fund C-Quadrat and a chain of offshore holding companies. Also, UBS Group UBS had extended a derivatives product known as a funded equity collar. However, shares of Deutsche Bank have declined since on account of concerns over losses, involvement in legal matters and falling investment banking market share.

HNA Group is still greatest shareholder of Deutsche Bank, followed by the Qatari royal family, with a known 6.1% interest. BlackRock BLK, is the third highest interest holder with a 4.88% stake, per a Financial Times article.

Our Take

Despite various strategies to strengthen financial performance, Deutsche Bank’s profitability is threatened by its involvement in persistent legal hassles and low rate environment in the domestic economy. Also, litigation issues related to past misconducts and related costs might hamper bottom-line growth.

In six months’ time, the stock has lost 21.6% on the NYSE compared with slight decline recorded by the industry.

Deutsche Bank currently carries a Zacks Rank #4 (Sell).

A better-ranked stock to consider in the same space is Banco Bradesco SA BBD. The stock has witnessed 7.1% upward estimate revisions in the past 30 days. Also, the company’s shares have gained nearly 71% on the NYSE in the past six months. It sports a Zacks Rank of 1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

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