Deutsche Bank is scrambling to contain the dual threat of damage to its image and lawsuits following an unprecedented closing of its €6.1bn German real estate fund last December.
According to Deutsche, investors who bought shares in the fund in the last two years will be indemnified if the value of their shares declines following an upcoming write-down of the fund’s property.
On 13 December, DB Real Estate, Deutsche’s property fund arm, shocked investors and its competitors by taking the unprecedented step of closing its core fund, which is 65% invested in Germany.
Never before has a German open-ended real estate fund, touted by German fund industry association BVI as a safe investment, been suddenly closed. Although a German property fund run by Deka Immobilien has suffered more than e2bn in outflows since the start of 2004, Deka Immobilien’s parent has kept the fund afloat by injecting liquidity.
DB Real Estate said the closing of its fund, known as Grundbesitz-Invest, was necessary to avert a liquidity crisis. It claimed that in the two days prior to the move, the fund suffered e600m in outflows after investors learned of a previously unscheduled write-down of the fund’s property.
Considering the fund’s available cash, estimated at e600m prior to the closing, and an expected charge of between e200m and e600m related to the write-down, DB Real Estate’s move could be justified.
But the decision was sharply criticised by DB Real Estate’s competitors, industry watchers and investors. Bärbel Schomberg, head of the BVI’s real estate committee and chief executive of DEGI, Allianz’s real estate fund arm, said: “We just can’t understand DB Real Estate. The German real estate market is about to recover.”
”Deutsche Bank has demonstrated that it is not able to deal with crises in a professional way,” added Klaus Nieding, a solicitor affiliated with DSW, a small investor lobby. Nieding and other solicitors are looking into whether Grundbesitz-Invest’s 300,000 investors can sue for damages.
Alexandra Merz, chief analyst at the fund-rating agency Scope, even told the Börsen Zeitung that DB Real Estate manufactured the crisis at Grundbesitz-Invest to make it easier to sell the fund’s property.