What's going on?

You might remember that Germany�s biggest bank, Deutsche Bank, was going through a very tough time last year. Well, on Sunday it announced that it will seek to raise �8 billion by selling new shares to investors! (tweet this)

What does this mean?

To try to right the ship, Deutsche Bank has been cutting costs, including laying off workers, and has cancelled its annual cash payment to shareholders (i.e. its dividend). However, for a variety of reasons, including multi-billion dollar legal fines in the US, Deutsche Bank has continued to bleed cash.


But the prospects for banks globally, including Deutsche Bank, have improved over the past six months. For one, moderately higher interest rates mean banks can charge customers more money for taking out loans. Investors, increasingly, seem to think that interest rates will continue to go higher, which helps the future outlook for banks.

Why should I care?

For the stock: It�s too early to tell what the impact of Deutsche Bank issuing new shares will be.

Issuing more shares can often make a company�s current share price go down significantly because the existing investors own proportionally less of the company. However, sometimes the fundraising acts as a positive catalyst for shares. If investors think that Deutsche Bank�s legal troubles are largely behind it and that it will put its newly raised cash to work in a successful way, then the share price could react positively over the coming weeks.


The bigger picture: It�s better for companies to raise cash when the sun is shining.

Banks are a popular investment right now, largely due to the expectations of rising interest rates. It is way better for a company to ask for money from investors when things are going well rather than being forced to raise money when the environment is poor. Deutsche Bank is almost certainly giving away a far smaller stake in itself today than it would have had it raised new investment six months ago.