(Bloomberg) -- Citigroup Inc. jumped in as a financier for a key Deutsche Bank AG shareholder after Bank of America Corp. dropped out to pare potential risks linked to the German lender’s stock rout, people with knowledge of the matter said.
Citigroup will finance a few hundred million euros for former Qatari Prime Minister Sheikh Hamad bin Jassim Al Thani’s margin loan after the value of his Deutsche Bank holding shrank, the people said, asking not to be named as details aren’t public. The rout in Deutsche Bank shares in recent weeks triggered a so-called “termination event” for the U.S. lender that had provided credit, backed by the stake, the people said.
While lenders frequently restructure loans to back clients during a market slump, Bank of America opted to withdraw because of the perceived risk involved and its own lower appetite for losses, they said. Representatives for Citigroup and Bank of America declined to comment, while spokesmen for Al Thani didn’t respond to requests.
Bank of America has become more selective on both advisory and financing deals after incurring about $300 million in losses tied to the December collapse of South African furniture retailer Steinhoff International Holdings NV, the people said. The decision to pull out from the Qatari loan was due to the risks tied to the German asset rather than the client, and the U.S. bank continues to advise on deals and offer loans in the Middle East, the people said.
Shares of Deutsche Bank have plunged 39 percent so far this year amid investors’ concerns that multiple turnaround plans -- and chief executive officers -- have failed to deliver revenue that justifies expenses, prompting downgrades to credit ratings and raising funding costs. A strategic overhaul announced in April -- paring businesses to improve profitability -- should eventually turn things around, Deutsche Bank Chief Financial Officer James von Moltke said this month. A representative for Deutsche Bank also declined to comment.
Citigroup meanwhile is making a renewed push into the Middle East, re-entering Saudi Arabia last year after a 13-year hiatus. Investment banks in the region are walking a tightrope after tensions between neighboring countries resulted in Saudi Arabia and its Arab allies last year placing a trade embargo on Qatar. The rift forced Qatar to shift import routes to Kuwait and Oman, and buy goods from Iran and Turkey.
The financing from Citigroup for Al Thani is for part of his loan. Qatari investment vehicles own at least a six percent stake in Deutsche Bank, data compiled by Bloomberg show.
A group of U.S. banks collectively lost more than $1 billion following Steinhoff’s accounting scandal. Citigroup took the biggest hit, with losses and charge-offs of $370 million. Some banks have pulled back from margin lending and are facing more questions about their existing portfolios following the Steinhoff losses linked to corporate equity derivatives but competition remains stiff because others are replacing them, Bloomberg reported in March.
Bank of America is ranked No.3 in advising on mergers in Europe, the Middle East and Africa this year while Citigroup is ranked No. 10, according to data compiled by Bloomberg.
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