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Deutsche Bank will rebrand its asset management arm and use a corporate structure that will give minority shareholders limited influence over the company irrespective of the size of their equity stake in the soon-to-be listed fund unit.
Deutsche Asset Management will be floated as a partnership limited in shares, or a KGaA, the company said at a capital markets day in London on Tuesday.
Under German law, external investors in a KGaA, as well as worker representatives, have less say than in a normal listed company, or Aktiengesellschaft.
“The KGaA structure increases complexity and may lead to a valuation discount,” warned Ingo Speich, funds manager with Union Investment, a Frankfurt-based asset manager.
Ahead of the float, the division will embark on a global rebrand. In the first quarter of next year, the division would be globally renamed as DWS, Nicolas Moreau, Deutsche Asset Management’s chief executive, told investors on Tuesday.
A rationale for the KGaA structure is that Deutsche Bank will have “more flexibility in its ownership”, said a person familiar with the decision. If Deutsche AM issues new shares to pay for an acquisition, Deutsche Bank “can go below 75 per cent without changing control”. This means Deutsche Bank will retain its controlling influence, which does not apply in a normal listing.
Deutsche Asset Management’s capital markets day in London is a milestone in the initial public offering of one of Europe’s biggest asset managers, with assets of €700bn under management. John Cryan, Deutsche Bank’s chief executive, wants to raise up to €2bn by floating a minority stake in the first half of next year.
The IPO, announced in March, is a cornerstone of his turnround strategy for Germany’s largest lender.
Deutsche Bank has not disclosed details about the timing and the size of the listing. A person close to the matter told the Financial Times the lender wanted to put about 25 per cent of the division up for sale.
The new brand is a tribute to the company’s historic roots, as it was founded as “Deutsche Gesellschaft für Wertpapiersparen” in 1956. DWS is a household name in Germany but not that well known in the US and Britain. In the US, the unit will trade under the brand “DWS — Deutsche Asset Management” during a transition period.
Claire Peel, the asset manager’s chief financial officer, on Tuesday outlined ambitious medium-term targets for the division. She promised to increase assets under management by 3 per cent to 5 per cent, compared with a rise of 2.8 per cent in the first nine months of 2017 and a 5.5 per cent drop last year.
While the group spends 68 cents to generate €1 in income, Mrs Peel wants to bring this below 65 cents. She is targeting a management margin fee of at least 30 basis points, which is in line with the performance in recent years. The company wants to pay out 65 per cent to 75 per cent of net income as dividends.
Deutsche Asset Management accounts for roughly a 10th of Deutsche Bank’s revenues but is more profitable than other parts of the bank. During the first nine months of 2017 it earned a return on equity of 11 per cent compared with the overall group’s 3.5 per cent.
Karl von Rohr, Deutsche Bank’s chief administrative officer, will be chairman of the asset manager. The lender wants to give five or six of the 12 supervisory board seats to external and independent members and four seats to workers’ representatives, the legal minimum for a KGaA under German law.
Mr Moreau, the asset management unit’s chief executive, will continue to have a seat on Deutsche Bank’s executive board, underlining the close relationship between both companies.
The KGaA structure ensures that the bank can keep control over Deutsche Asset Management even if it sells down shares.
Deutsche Bank will act as the asset manager’s dominant shareholder. It can name the asset manager’s management board without consulting with the latter’s supervisory board or its shareholders. In an AG, the top executives are chosen by the supervisory board, which is elected by all shareholders.
KGaA’s are rare but not entirely uncommon in the German corporate world. Consumer goods maker Henkel as well as drugs and technology firm Merck are two prominent and successful examples.