Initial price thoughts were circulated at mid-swaps plus 400bp area and the final spread moved little before being set at 400bp. The €750m deal was well covered, with more than €1.7bn orders filling the final book.
One banker away from the trade said Deutsche Bank’s outstanding 2025 tier two notes were trading at 353bp on Wednesday morning, implying fair value for the new bonds was around 360bp-365bp.
“Deutsche’s outstanding notes have traded 50bp back already since they announced the mandate last week,” he said. “In theory you are therefore actually 90bp back of where that would have been if they had not flagged the trade up earlier.
"It is a pretty hefty price they are having to pay, which is not exactly a resounding endorsement of how people feel about the credit.”
But other market participants said it was an encouraging sign the bank was able to return to the capital markets for subordinated funding, having been effectively locked out for nearly three months.
Deutsche’s additional tier one securities were at the centre of a sharp sell-off in European bank capital this February, as investors became concerned the German lender did not have enough available distributable items (ADIs) to pay coupons on its additional tier one (AT1) instruments.
In evidence of how much sentiment has turned, the initial spread for Thursday’s tier two issue was nearly double where Deutsche Bank’s last effort was priced in February 2015.
Deutsche Bank has been working closely with market participants to try and dampen some of the fears about its capital position.
The cost of insuring the bank’s debt has risen 32bp since the bank announced its first quarter results last month, but has recovered 87bp from the high of February this year.
The German lender’s transitional common equity tier one (CET1) ratio stood at 12% in the first quarter of 2016, giving it a comparatively thin cushion over its supervisory review and evaluation process (SREP) requirement of 10.76%.
If the bank suffers further heavy losses again in 2016 its capital ratios could come under further pressure and fears over whether it has enough ADIs to pay its AT1 coupons could flare up once more.
Deutsche Bank reportedly dropped plans to issue more AT1 in the coming months, after discussing its capital position with the European Central Bank earlier this year. The sell-off had spooked many senior bank executives and led to calls for the product's complex rules to be simplified.
But a source close to the matter said that as long as regulators require banks to issue additional tier one securities, the product will remain a part of Deutsche Bank’s funding toolbox. The source added that the bank was looking to raise a further €3bn of AT1 by 2019.
The bank still has one of the largest amounts of AT1 capital to raise to meet regulatory capital requirements under Basel III.
Deutsche Bank was also active in dollar senior unsecured this week, printing a $3.6bn three tranche offering on Monday.