Dhe restoring trust in the banking system: This was the goal pursued by the Swiss government and the central bank of the Alpine country when last week they forcibly merged the 167-year-old Credit Suisse with its rival UBS, so to speak. She was only able to gain the trust of investors for a very short time. After an extremely volatile week, the prices of Deutsche Bank and Commerzbank went down again.
The shares of Germany’s largest financial institution lost 15 percent at the top. Within two weeks, i.e. since the banking crisis triggered by the collapse of the Silicon Valley Bank, Deutsche Bank has lost 30 percent or around 7 billion euros of its market value. At the time this issue went to press, Deutsche Bank shares were trading at EUR 8.23, down 11.5 percent on Thursday
The Dax returnee Commerzbank did not fare much better. Within two weeks, it lost around a quarter of its market value, which was just over 10 billion euros on Friday. Gone are the days when the Commerzbank rate was in double digits. At the time of going to press, a Commerzbank share was still worth EUR 8.83, 6 percent less than the day before. The weakness of the banks pushed the leading German index Dax back below the 15,000 point mark with a daily minus of 1.9 percent.
Support from the Federal Chancellor
Deutsche Bank received support from Chancellor Olaf Scholz (SPD): “There is no reason to worry,” said Scholz after the EU summit in Brussels. Deutsche Bank has fundamentally modernized and reorganized its business model and “is very profitable”. The banking system in Europe is very stable and resilient.
But the distrust in the market runs deep. This is probably also due to the fact that the central banks are continuing to tighten interest rates to combat inflation, despite the turbulence in the financial institutions. The Swiss central bank raised the key interest rate by half a percentage point this week. Both the US Fed and the Bank of England raised interest rates by 25 basis points.
Earlier this week, Michael Heise, chief economist at family wealth manager HQ Trust, advised to avoid bank stocks. The storm isn’t over yet. The reasons may also lie in the USA, the starting point of the current banking earthquake.
Along with the rate hike, which is making things harder for financial institutions with high exposure to government and government-backed mortgage securities, there is Treasury Secretary Janet Yellen. She had said on Wednesday that a full guarantee for bank deposits was not planned, but assured on Thursday that the government had taken decisive measures to ensure bank deposits are safe. The Ministry of Finance is prepared to take additional steps if necessary.
One of the most important rescue measures was the Bank Term Funding Program established on March 13, which grants liquidity to financial institutions against the deposit of government bonds or securities of equivalent quality. The focus of attention continues to be First Republic Bank, which continues to lose value despite concerted liquidity support from major banks amounting to 30 billion dollars. On Thursday it ended trading down 4.5 percent. The enterprise value shrank by 90 percent within one month. Attempts to organize a takeover have so far not been successful.