Deutsche Bank has sold about $5 billion of loans financing leveraged buyouts to two private equity firms in the United States, a person familiar with the matter said on Tuesday.
The bank, one of the biggest lenders to private equity deals, is likely to sell a roughly similar amount of loans in Europe, the person said.
Deutsche is one of many global banks looking to move leveraged loans off their balance sheets to avoid having to write the assets down further amid the credit crunch. People familiar with the matter said last week that Citigroup was close to selling about $12 billion of leveraged loans to private equity firms.
Deutsche Bank sold the assets in the United States at around 90 cents on the dollar, the source said. As is the case with Citi, Deutsche Bank is financing much of the sale, the source said.
Deutsche Bank had about $56.8 billion of leveraged loans on its balance sheet at the end of 2007. The bank declined to comment on Tuesday.
As of last week, banks globally had about $113 billion of leveraged loans left to unload, a number that was closer to $154 billion at the end of 2007, according to Reuters LPC. Between the expected Citi sale and Deutsche's deal, banks will have less than $100 billion leveraged loans to shed.
Assuming private equity firms are financing about three- quarters of the purchase price, which people familiar with the Citi and Deutsche deals say is about right, the investments could end up returning more than 20 per cent for the LBO firms.
The private equity firms are betting the loans will ultimately be paid off as expected and that the declining market value of the loans should not be confused with their being bad credits.
Banks globally are facing pressure from investors and regulators to shed assets and build their equity bases in a process known as deleveraging, after financial institutions globally have written down some $300 billion of US subprime mortgages and other risky assets.
Markets are likely to continue to be difficult, but there is some evidence that "the worst is behind us," Dick Fuld, chief executive of Lehman Brothers Holdings Inc said on Tuesday.
Investors seem increasingly optimistic about financial stocks and even announcements of write-downs -- as with Deutsche Bank earlier this month -- seem to lift shares and hopes that the sector may be healing. (Reuters)
Deutsche Bank sells $5bn loans