Last checked at 
* Bank warns of material risks stemming from probes
* Rights issue prices above expectations
* Bank says investment bank results suffered so far in Q2 (Recasts with legal risks)
By Thomas Atkins
FRANKFURT, June 5 (Reuters) - Deutsche Bank warned that potential fines stemming from a range ofinvestigations could threaten its capital base, casting a shadowover an 8.5 billion ($11.6 billion) capital hike that hadsoundly beaten price expectations.
Deutsche Bank cautioned that performance at its investmentbank, its largest division, had weakened in April and May andthat potential fines could complicate efforts to comply withregulatory capital minimum requirements.
The warnings came only hours after Germany's largest bankpriced its rights issue at a higher than expected 22.50 eurosper share, enabling it to raise more capital than anticipated tofortify its regulatory ratios and pay for a restructuring.
In a 500-page prospectus published as part of the issue,Deutsche listed a series of potential threats, saying an ongoingglobal probe into currency price manipulation and a U.S. probeinto financial dealings with Iran posed material risks.
"The increasingly stringent regulatory environment to whichDeutsche Bank is subject, coupled with substantial outflows inconnection with litigation and enforcement matters, may make itdifficult for Deutsche Bank to maintain its capital ratios atlevels above those required by regulators or expected in themarket," the bank said.
The 6.75 billion euro rights issue forms the lion's share ofa two-part capital hike totalling 8.5 billion euros announced bythe bank in mid-May.
Deutsche has been dogged by investigations launched in thewake of the financial crisis, paying over 5 billion euros infines and settlements in the past two years. Analysts at CreditSuisse recently estimated that Deutsche faced another 3.9billion euros in litigation costs.
Deutsche Bank has set aside 2 billion euros in legalprovisions in anticipation of further fines or settlement costs.
Investors welcomed the rights pricing cautiously but pushedthe shares down 2.5 percent after the bank published the legalwarnings, making it the biggest loser among European banks. "The enthusiasm has its limits," said one of the bank'stop ten shareholders under the condition of anonymity.
"It is good that DB is beginning to fill the real andperceived capital gap that they have suffered since thefinancial crisis," said a European fund manager. "The equityissue is necessary to achieve this and it good to see managementdealing with this despite the large size of the deal."
LAST MAN STANDING
The bank has spent more than two weeks marketing the rightsissue to shareholders, with co-Chief Executives Anshu Jain andJuergen Fitschen promising both cost cuts and business growth aspart of a turnaround plan.
Deutsche sees itself as Europe's last man standing in theinvestment banking sphere after a pull-back by Barclays, UBS and others left a gap that it aims tofill as a top debt trader.
It wants to fortify its position in North America and Asiain wealth management and investment banking while modernizingits domestic retail franchise in Germany.
But at least half of the new money will go to filling newcapital demands triggered by regulatory reforms, bank officialshave told investors.
The price of 22.50 euros per share represents a discount ofaround 21 percent to the theoretical share price accounting forthe dilution of the new shares, meaning Deutsche was not forcedto offer the shares at a huge discount.
That compares favourably to discounts of 33-38 percent forrecent capital hikes by Commerzbank, Sabadell and Barclays.
Trading in the subscription rights on the Germanstock exchanges is expected to take place from June 6 to June 20and in New York from June 6 to June 18.
Deutsche shares have fallen some 16 percent since the startof the year compared with a 5 percent rise on average by rivals, partly due to expectations of a dilutive capital hike.
The issue hit a procedural delay on Wednesday that forcedthe bank to stall the pricing by one day. ($1 = 0.7341 Euros) (Additional reporting by Kathrin Jones and Arno Schuetze inFrankfurt and Freya Berry and Simon Jessop in London; Editing byGiles Elgood)
