Deutsche Bank’s risky investment in a distressed cargo-shipping company is poised to reap a $1 billion windfall for the scandal-ridden financial giant, according to a report.
The fat profit – equal to a quarter of the bank’s 2020 investment banking earnings – is a marked turnaround for a bank that suffered five years of losses and numerous run-ins with regulators that forced it to fire 18,000 people as part of a massive restructuring effort.
In 2016, the German lender began snatching up tens of millions worth of Zim Integrated Shipping Services Ltd.’s bonds, bank loans, and equity. The debt-laden Israeli freight shipping company had just emerged from a restructuring at a time when shipping revenues were at record lows.
But one trader at Deutsche, Mark Spehn, believed the shipping industry’s consolidation and the management at Zim would make the bet a winner, Bloomberg report (paywall). The last year proved him right.
Soaring consumer demand and a crackdown on carbon emissions brought the company roaring back to life in the second half of 2020. In January, Zim — the eleventh largest shipping carrier — went public. Since its debut, shares have surged 290 percent. The bank has already cashed out $90 million in stock and still holds $645 million in the company, the report says.
It will be one of the biggest payoffs for the German bank since it made $2 billion on a bet against subprime securities during the financial crisis. The news comes weeks after Deutsche reported its best quarterly profit in seven years.
Zim is expected to pay shareholders dividends this year – and a report from Jefferies says the company will improve its cash flow and balance sheet.
Deutsche Bank CEO Christian Sewing has been optimistic the bank is on the right track. In April he said, “Our first quarter is further evidence that Deutsche Bank is on the right path in all four core businesses, and is building sustainable profitability,”