Capital Group Pulls Back From European Banks With Block Trades
Capital Group Is Mystery Seller of Deutsche Bank, Commerzbank
(Bloomberg) -- One of the world’s biggest mutual funds is getting more bearish on European banks.
Capital Group’s behemoth EuroPacific Growth fund appears to be the driving force behind more than $3 billion of block trades in three major lenders in the last few weeks, according to people briefed on the matter and data compiled by Bloomberg. The $161 billion fund was among the biggest shareholders of Barclays Plc, Commerzbank AG and Deutsche Bank AG before the sales.
The move by Capital Group comes as the European banking industry faces the twin challenge of rapid inflation and potential recession in the wake of sanctions imposed on Russia for its war in Ukraine. The announcement late Monday that an undisclosed investor was selling shares in Deutsche Bank and Commerzbank hit both stocks, which were down as much as 10.8% and 9.6% respectively.
Capital Group declined to comment on the reason for the divestitures or even if it was the seller. But it may represent a pivot for a fund that’s run by almost a dozen managers and has significantly underperformed its benchmark over the past year. Banks were the fund’s second-largest industry at the end of March.
Capital Group took a large stake in Deutsche Bank in early 2020, sending a signal of confidence in Chief Executive Officer Christian Sewing and pushing the stock up. Just a month later, Capital Group also increased its stake in Commerzbank. In the subsequent two years, those holdings have surged in value.
At the end of January 2020, when Capital Group disclosed its stake in Deutsche Bank, the stock traded at 8.28 euros a share. The stake priced at 10.98 euros a share, a more than 30% increase. When its holding in Commerzbank was disclosed at the end of February 2020, the lender’s stock price closed at 5.21 euros a share. It was priced 25% higher at 6.55 euros a share this week.
Representatives for Deutsche Bank and Commerzbank each said that any sales of shares by investors don’t affect their respective strategies.
Capital Group’s sale of Barclays shares last month took place shortly after the lender revealed a costly error in the way it sold billions of dollars of securities. Barclays said that it expected to take a 450 million-pound hit after mistakenly issuing about $15 billion more structured notes and exchange traded notes than it had registered for sale.
Los Angeles-based Capital Group is one of the world’s largest active asset managers, with more than $2 trillion in assets. The firm has holdings in numerous financial companies including PayPal Holdings Inc. and Wells Fargo & Co., according to regulatory filings.
The 38-year old fund is run by a group of 11 managers, including Nicholas Grace, Noriko Honda Chen and Carl Kawaja. At the end of March, around 17% of its assets were invested in information technology companies and about 14% in the financial sector. Since the end of 2021, its assets have shrunk by almost $30 billion according to company filings and data compiled by Bloomberg.
Read more: Capital Group Seen as Seller in $1 Billion Barclays Block Trade
The three banks were not the only European financial firms in the fund’s portfolio. Through the EuroPacific fund, as well as via other mandates, the asset manager has built large stakes in several banking groups, including ABN Amro Bank NV, BNP Paribas SA, Banco Santander SA and ING Groep NV.
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