Deutsche Bank AG Chief Executive Officer John Cryan said he has no reason to believe his largest shareholder, HNA Group Co., plans to alter its stake as the German lender’s stock slumps and the Chinese conglomerate seeks to raise cash.

“I’ve no sense of any change in their stance,” Cryan said in an interview with Bloomberg TV Friday. “I don’t know what their intentions are. Our relationship with them is fine.”

HNA is under mounting financial pressure after it spent billions of dollars on a debt-fueled acquisition spree that included a 9.9 percent stake in Deutsche Bank. Partly behind the reversal of its fortunes is China’s clampdown on capital outflows and a campaign to snuff out risks stemming from the country’s mounting pile of corporate debt. In HNA’s case, it doesn’t earn enough profit to cover interest expenses that, according to Bloomberg data, have soared to levels topping those of any non-financial company in China.

HNA, which became the largest shareholder after Deutsche Bank’s 8 billion-euro ($10 billion) capital increase last year, has hedged its stake over a period of three years through a series of transactions with UBS Group AG, limiting potential gains and potential losses. Alexander Schuetz, a representative of HNA on Deutsche Bank’s supervisory board, said in an interview with Germany’s Handelsblatt in December that the three-year hedge is a sign of the conglomerate’s long-term commitment.

The first of these hedges, known as collar options, could be triggered as soon as Feb. 12 if Deutsche Bank’s shares trade at 15 euros or below, according to a filing, though Schuetz said in the interview that he was planning to renegotiate that arrangement.

Deutsche Bank’s shares fell below 15 euros this week and slumped 6.2 percent, the most since July, to 13.86 euros on Friday. The Frankfurt-based bank is among the worst-performing large European bank stocks in the past year.

A collar is an options-trading strategy that involves holding shares of a specific stock while buying protective puts and selling call options against that holding. The puts and the calls have the same expiration month and must be equal.

UBS has provided about 2.36 billion euros of net financing against all three collar transactions, according to a Dec. 20 filing.

Source:
courtesy of BLOOMBERG

by Prudence Ho and Matthew Miller

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