Deutsche Bank will buy back more than $5bn in senior debt, it said in a statement yesterday, sending its shares higher.
A person familiar with the matter said that Germany’s flagship lender launched the tender after assessing that the market was pricing its bonds incorrectly.
The yields of some of the benchmark bonds had more than doubled since the lender posted a record loss in late January.
Deutsche Bank’s shares extended gains and traded up more than 10% amid a strong rebound in European bank shares following positive results from Commerzbank and a rally in oil prices.
Deutsche Bank has had €215bn in liquidity reserves, of which €50bn are in senior debt.
The tender applies to about €20bn of the senior debt but may be increased if the demand to sell turns out to be higher than expected, the person familiar with the matter said.
Under the tender Deutsche Bank will seek to buy euro-denominated unsecured bonds worth €3bn ($3.38bn) and dollar-denominated bonds worth $2bn.
“By repurchasing this debt below its issue price, the bank realises a profit”, chief financial officer Marcus Schenck said.
He added that Deutsche Bank was able to repurchase the bonds without altering its 2016 funding plan, having already completed €4bn of its full-year funding plan of up to 35bn.
Junior debt is not part of the buyback programme.
Ratings agency Standard and Poors on Thursday downgraded some of Deutsche Bank’s junior debt saying the change ‘with a stable outlook’ reflected the expectation that the Frankfurt-based bank would make steady progress during the next two years towards its financial and operational targets for 2020.
On Monday Deutsche Bank had said it had “sufficient” reserves to make due payments this year on so-called Additional Tier 1 (AT1) capital securities, seeking to calm investors after its shares had plunged.
Yesterday’s announcement marks a second offensive by the group to allay fears, after its new chief executive John Cryan took the unusual step earlier this week of issuing a public statement and writing to the group’s employees to say that the bank “remains absolutely rock-solid, given our strong capital and risk position.”
He also said that it has sufficient cash to pay its riskiest debts.
Separately, in Brussels, German Finance Minister Wolfgang Schaeuble also swiped aside concerns over the bank’s health.  “Deutsche Bank is a strong bank and that’s that,” he told journalists yesterday, adding that there were “no worries” about the health of the financial institution.
It “has sufficient capital... we had taken  precautions to make banks resilient after the finance and banking crisis in 2007 and 2008,” he said.  
The bank faces a quagmire of as many as 6,000 different litigation cases, the provisions for which helped push it to a record loss of €6.8bn last year.   
It was fined last May a record $2.5bn for its involvement in rigging interest rates, and has faced probes by Swiss authorities for suspected price fixing on the precious metals market.
US investigators have also looked into its Moscow branch on suspicion of possible involvement in money-laundering.