Hudson Executive has built a 3.1-percent stake in Germany's biggest lender to become one of its major shareholders. The New York-based fund said it believed in CEO Christian Sewing to turn around the ailing business.
The transaction, worth about $620 million (€543 million), makes Hudson Executive Capital the fourth largest investor in Deutsche Bank, after Chinese conglomerate HNA, two Qatari funds and US private equity firm Blackrock.
The New York-based activist fund acquired the 3.1-percent stake over the recent months as Deutsch Bank shares fell to all-time lows. Hudson Executive Capital leader Douglas Braunstein said Deutsche's downfall was a "compelling opportunity."
"It's been beaten up for so long, people have stopped really thinking about it in a fair way," he said on Thursday after disclosing the investment.
Christian Sewing, who was appointed chief executive of Deutsche this year, said in a statement the he appreciated the hedge fund's confidence in Deutsche Bank's "ability to execute on our strategic objectives."
"Doug Braunstein and Hudson Executive come with deep backgrounds investing in financial services companies," Sewing said.
Deutsche Bank shares have slumped almost 46 percent this year, and plumbed an all-time low in October after the bank had reported a sharp decline in earnings for the third quarter that forced it to cut full-year revenue forecasts.
The bank is beset by huge problems, including billions in settlement fees for its financial-crisis wrongdoings, compliance issues and technology shortfalls.
Nevertheless, Hudson Executive is banking on the Deutsche Bank CEO's turnaround strategy. This aims to strengthen the lender's traditional retail banking business in Germany as well as focusing on wealthy clients and European companies seeking advice on transactions, lending and cash management.
In a written statement, the hedge fund said that there was "significant long-term value in Deutsche Bank," and that the bank was "well-capitalized and highly liquid."
Especially Deutsche's global-transaction-banking unit — a part of its investment bank — had brighter prospects than a number of poor results suggested, said Braunstein, describing the unit as a "crown-jewel asset."
But it took Braunstein more than a year of consultations with banking experts, including current and former Deutsche Bank CEOs, to realize that the bank was "misunderstood and undervalued."
The hedge fund manager also underscored his confidence in Christian Sewing, saying he was "taking the right steps."
"We would not have made the investment but for the fact that we think he's the right guy for the job," Braunstein said.
Immediately after the announcement was made, Deutsche Bank shares jumped 3 percent in midday trading at the Frankfurt Stock Exchange on Thursday.
uhe/aos (Reuters, dpa)