Deutsche Bank Shares Plunge in Renewed Bout of Stress

Deutsche Bank AG was at the center of another selloff in financial shares heading into the weekend.

(Bloomberg) — Deutsche Bank AG was at the center of another selloff in financial shares heading into the weekend. 

The German bank tumbled 12% on Friday. Credit default-swaps on Deutsche Bank’s euro, senior debt surged to the highest since they were introduced in 2019. Other banks with high exposure to corporate lending also declined, with Commerzbank sliding 9% and France’s Societe Generale falling 7%.

The collapse of Silicon Valley Bank and the emergency rescue of Credit Suisse last weekend has rattled investors and raised questions about the broader stability of the financial industry at a time of soaring interest rates and high inflation. 

The moves follow losses in US banks yesterday, which tumbled even after US Treasury Secretary Janet Yellen told lawmakers that regulators would be prepared for further steps to protect deposits if needed. 

“The situation will not be solved by comforting words, but will only be mitigated with concrete facts and figures,” said Andreas Lipkow, a strategist at Comdirect Bank. “Patience is therefore required and the coming quarterly figures from banks will be highly scrutinized.”

Separately, a tier 2 subordinated bond by Deutsche Bank surged toward face value on Friday after the lender unexpectedly announced its decision to redeem the note early.

The notes, which mature in 2028, had slumped to as low as 90 cents in the aftermath of Credit Suisse’s takeover. While pricing had recovered in recent days, they were still indicated at about 94, suggesting a large probability of Deutsche Bank skipping its call option.

The pressure on European banks is coming after regulators and company executives have sought to reassure traders about the health of the industry. The government-brokered takeover of Credit Suisse by UBS is “no indication” of the state of European banks, Deutsche Bank management board member Fabrizio Campelli said at a conference yesterday. 

He also said that the German lender’s retail deposits are “very diversified” and hence don’t have the kind of concentration risk that seems to have persisted at Silicon Valley Bank.

The Stoxx 600 Banks Index was 4.4% lower on Friday, making it the worst-performing sector in Europe. 

“The greater danger is the economic outlook and indeed how both the economy and the financial system will cope with a recession,” said James Athey, investment director at Abrdn. “That’s when asset impairment is more likely. But of course the former can easily precipitate the latter, so it’s a fragile situation.” 

–With assistance from Farah Elbahrawy.

(A previous version of this story corrected the year that CDS for Deutsche Bank’s euro, senior debt was introduced to 2019.)

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