Deutsche Bank Eyes $20B Debt Sale

Deutsche Bank DB is planning to unload roughly $20 billion in leveraged debt, The Wall Street Journal reported Monday.

The debt, tied to the since-cooled buyout boom prior to the onset of the credit crisis last summer, would be sold to investors including private-equity firms Blackstone GroupBX, Apollo Management and TPG, the paper reported. The news follows a similar report last week that CitigroupC is trying to do the same, as clogged credit markets begin to show signs of improvement.

According to published reports, Citi is hoping to sell $12 billion in repackaged loans to many of the same private-equity firms as Deutsche Bank at a rumored 90 cents on the dollar. UBS UBS has also been raising capital. Both issues have been absorbed by the market, which some say is a good sign for investment banks.

Deutsche's rumored debt sale could signal an attempt to free up capital to purchase Deutsche Postbank, a banking subsidiary of Deutsche Post, the German postal service, said Bear Stearns analyst Chris Wheeler. Deutsche Post just recently backed away from those earlier comments saying it was in no rush to sell.

"I think they just finally got practical and realized they could use the capital elsewhere," Wheeler said. "Just last year, Deutsche Post said they wanted to sell the 50% it held in Deutsche Postbank. There has been a lot of excitement around this sell. Possibly, Deutsche Bank is gathering money to buy."

Deutsche Bank did not respond to a request for comment.

The European banks had been insisting that they had avoided the subprime crisis by only originating and distributing -- and avoiding holding -- investment grade debt. But the banks did an about-face and began holding the debt, claiming they didn't want to dump product on the market in a panic, and instead were forced to write down its value. Wheeler pointed out Credit SuisseCS had 50 billion Swiss francs worth of these leveraged loans. But now, banks appear to be tiring of holding onto the devaluing debt and want to free up the capital.

"Every time they take another writedown, the buyers know they have more power to offer a lower price. The buyers know the banks are stuck and they also know the product is actually good quality," said Wheeler. He thinks Deutsche will probably get 80 cents to 92 cents on the dollar. He agrees that it's good paper and high yielding, "but it's a bit of a cat and mouse game." Credit Suisse is expected to write down as much as $5 billion in the first quarter.

Wheeler also suggested that Deutsche may want to free up the capital to actually be a buyer of more undervalued distressed debt.

The German bank is slated to report earnings April 29. The stock recently was off 31 cents at $115.01.