Germany's top lender is considering a capital increase of up to 9 billion euros ($11.4 billion) to bolster its balance sheet as Basel III capital requirements are finalised, two people familiar with the matter said on Thursday.
For Deutsche Bank it would be the largest ever capital increase and could herald the biggest in Europe this year, Thomsonreuters data shows.
A big cashcall would allow Deutsche Bank to raise its stake in Deutsche Postbank, in which it already owns just under 30 percent, and recapitalise that business, but is also seen as a move to tap markets ahead of rivals who may also need to raise funds once new capital rules are agreed.
More German banks are expected to follow. The 10 biggest may need 105 billion euros in fresh capital under the new capital rules, the German Banking Association has said.
Basel rules on Tier 1 capital -- which are set to be finalised by Monday -- will be phased in from 2013 onwards.
National Bank of Greece also launched a rights issue this week, and more lenders in Greece, Spain, Portugal, Ireland and Italy could tap investors for funds, analysts estimate.
"This reinforces worries about the health of European financial institutes," Veysel Taze, analyst at Close Brothers Seydler, said.
The timing of the capital increase was uncertain but could come as soon as next week, one of the sources said. Deutsche Bank declined to comment.
Deutsche Bank shares were down 5.0 percent at 47.49 euros by 1044 GMT, and the news tugged Europe's bank sector 0.7 percent lower on fears more banks will follow with dilutive fundraisings.
France's Credit Agricole and Societe Generale and Germany's Commerzbank, all seen as candidates to raise funds, dipped between 0.4 percent and 2.7 percent.
The new capital rules — dubbed Basel III — to make banks resilient enough to cope with another financial crisis are due to be laid out on Sunday after international regulators worked out a compromise deal to put to central banks and supervisors.
Banks will need to have a minimum core Tier 1 capital ratio of 7 to 9 percent, including a capital conservation buffer, officials and regulatory sources have said.
After buying Postbank, Deutsche Bank needs to raise between 7.5 billion euros to 8.6 billion euros to maintain a core Tier 1 ratio of 9 percent, analysts at Citi said in a note on Friday.
That would include a minimum base core Tier 1 capital ratio of 4.5 to 6 percent and an additional capital conservation buffer of 2 to 3 percent. Any bank that fails to keep above the buffer would have to curb payouts such as bonuses and dividends.
Deutsche Bank's core Tier 1 capital ratio -- a key measure of a bank's ability to absorb shocks -- was 7.5 percent at the end of June. Deutsche Postbank's core Tier 1 capital ratio was around 5 percent at the end of June.
Deutsche Bank is weighing the benefits of delaying a takeover of Postbank with its desire to tap the markets while investor appetite for banking stocks is high.
Although Deutsche Bank has said it is in no rush to swallow Postbank, it has set out certain criteria for a takeover. If Deutsche Bank's stake moves beyond 30 percent, it will trigger a mandatory bid offer under German takeover rules.
Economists warn that a greater risk than more fundraising by banks is that lenders will limit lending to comply with the new rules and stifle a fragile economic recovery.
Yet regulators are confident that the new requirements will improve financial system stability without hurting lending.
European Central Bank President Jean-Claude Trichet will chair the talks at Basel. He warned in Friday's Financial Times that banks could not in future expect the world's taxpayers to put at stake such huge sums in rescue packages as in the past three years.
"We cannot do that twice. The people in our democracies would not accept that," he said.
The Basel reform introduces a global standard on bank liquidity for the first time and France's banking federation on Friday warned that all global banks may have to boost capital if a ratio requiring banks to hold liquid, short-term assets is set very high.
European financial corporate credit default swap spreads narrowed, making it less expensive to insure banks against the risk of default. The iTraxx senior financials was 2.4 basis points tighter and Deutsche Bank's 5-year CDS was 6.4 basis points tighter at 97.5 bps.
Deutsche Bank already owns a stake of just under 30 percent in Deutsche Postbank, which has a market value of around 5.4 billion euros based on Thursday's closing price.
A fundraising of 9 billion euros would allow Deutsche Bank to fully consolidate Postbank and have a core Tier 1 of close to 9 percent, analysts at Execution in London estimated.
Deutsche Bank is sounding out investment banks about the capital increase, one source said.
Consolidating Postbank would give Deutsche Bank access to Postbank's 14 million clients and help diversify its business away from the volatile earnings of investment banking.
Deutsche Postbank Chief Executive Stefan Juette told a banking conference on Thursday he did not know when or whether Deutsche Bank would increase its stake.
