Deutsche Bank AG (DBK), continental Europe’s biggest bank, will raise as much as 4.8 billion euros ($6.3 billion) to increase capital as first-quarter profit climbed.

The company will issue 2.8 billion euros in stock, or as many as 90 million new shares, with full dividend entitlement for 2012, as part of the plan, the Frankfurt-based bank said in a statement today. Deutsche Bank has already received enough orders for the sale, according to the term sheet.

Co-Chief Executive Anshu Jain is overhauling operations and boosting capital levels as the debt crisis hurts earnings and Standard & Poor’s warns of a possible credit rating downgrade. Jain said in January he didn’t see it in shareholders’ best interests to issue extra capital given the company’s share price compared with the value of its assets.

“A capital increase should come and has come,” Andrew Lim, an analyst at Espirito Santo Investment Bank, said by telephone from London. “Our concern is that the capital increase isn’t big enough to fill holes in the balance sheet.”

The new shares are being “placed with institutional investors by way of an accelerated book-build offering,” Deutsche Bank said in the statement. It said it may also sell as much as 2 billion euros of subordinated capital instruments over the next 12 months.

The share sale will increase Deutsche Bank’s core Tier 1 capital adequacy ratio under Basel III rules, a key measure of financial strength, to about 9.5 percent from 8.8 percent at the end of March, it said.

Shareholder Impact

The sale of the shares will dilute existing shareholdings by as much as 10 percent. Deutsche Bank has about 938 million shares outstanding, according to a report published today.

“They’re trying to protect shareholders” by going for a “small” dilution, Dirk Becker, an analyst with Kepler Capital Markets who recommends clients buy Deutsche Bank stock, said by phone. “I think the shares will be placed pretty quickly.”

Deutsche Bank’s shares climbed 1.7 percent to 32.90 euros in Frankfurt. The announcement of the capital increase came after the close of trading. Deutsche Bank has a price to book ratio of 0.57 compared with 0.83 for the Bloomberg Europe Banks and Financial Services Index.

Rating Review

Concerns about Deutsche Bank’s capital levels prompted Standard & Poor’s (SPY) to place its rating of A+ on review in March, citing the debt crisis, litigation and a plan by the Federal Reserve to order non-U.S. banks to supply capital for their U.S. units.

Deutsche Bank is likely to be most affected by the Fed’s proposal, Goldman Sachs Group Inc. (GS) analysts including Jernej Omahen said last month.

Separately, Deutsche Bank said first-quarter net income rose 19 percent from a year earlier to 1.65 billion euros, exceeding the 1.21 billion-euro average estimate of six analysts surveyed by Bloomberg.

Deutsche Bank set aside 354 million euros against losses from non-performing loans in the quarter. The provisions were expected to total 425 million euros, according to analysts.

The company said pretax profit at its investment banking unit fell 2 percent in the first quarter from a year earlier to 1.85 billion euros. Cost reductions failed to offset a 4 percent decline in revenue to 4.6 billion euros.

Source: Bloomberg (by Nicholas Comfort)