Deutsche Bank shares fell by more than 11% on Friday following a spike in credit default swaps Thursday night, as concerns about the stability of European banks persisted.
According to CNBC News, The German lender’s Frankfurt-listed shares retreated for a third consecutive day and have now lost more than a fifth of their value so far this month. Credit default swaps — a form of insurance for a company’s bondholders against its default — leapt to 173 basis points Thursday night from 142 basis points the previous day.
The emergency rescue of Credit Suisse by UBS, in the wake of the collapse of U.S.-based Silicon Valley Bank, has triggered contagion concern among investors, which was deepened by further monetary policy tightening from the U.S. Federal Reserve on Wednesday.
Swiss and global regulators and central banks had hoped that the brokering of Credit Suisse’s sale to its domestic rival would help calm the markets, but investors clearly remain unconvinced that the deal will be enough to contain the stress in the banking sector.
Deutsche Bank’s additional tier-one (AT1) bonds — an asset class that hit the headlines this week after the controversial write-down of Credit Suisse’s AT1s as part of its rescue deal — also sold off sharply.
Deutsche led broad declines for major European banking stocks on Friday, with German rival Commerzbank shedding 9%, while Credit Suisse, Societe Generale and UBS each fell by more than 7%. Barclays and BNP Paribas both dropped by more than 6%.
Deutsche Bank has reported 10 straight quarters of profit, after completing a multibillion-euro restructure that began in 2019, with the aim of reducing costs and improving profitability. The lender recorded an annual net income of 5 billion euros ($5.4 billion) in 2022, up 159% from the previous year.
Its CET1 ratio — a measure of bank solvency — came in at 13.4% at the end of 2022, while its liquidity coverage ratio was 142% and its net stable funding ratio stood at 119%. These figures would not indicate that there is any cause for concern about the bank’s solvency or liquidity position.
German Chancellor Olaf Scholz told a news conference in Brussels on Friday that Deutsche Bank had “thoroughly reorganized and modernized its business model and is a very profitable bank,” adding that there is no basis to speculate about its future.
Markets slightly trimmed losses after European Central Bank President Christine Lagarde told EU leaders the euro area banking sector was resilient due to strong capital, liquidity positions and post-2008 reforms. She also said the ECB toolkit was equipped to provide liquidity to the financial system if needed. Deutsche Bank declined to comment.