Deutsche Bank loses more than 10% on the stock market

by time news

La Deutsche Bank. TOBY MELVILLE / REUTERS

As the cost of default coverage climbs, the German bank’s stock plummets.

The title of Deutsche Bank, the first German bank, fell on Friday by more than 10% after the sharp increase in the cost of insurance against the risk of default (CDS), which fuels concerns about the resilience of European banks. Around 10:20 GMT, the action lost 11.0% to 8.30 euros, after having fallen up to 14%, chaining a third session of decline in a row on the Frankfurt Stock Exchange. Its rival Commerzbank (-8.50%) and in Paris Société Générale (-7.01%) are among the strongest declines affecting the entire sector. The cost of debt default insurance rose for most European banks on Thursday, but less so than Deutsche Bank.

The surge in the prices of hedging instruments for the bank, CDS (Credit Default Swaps), is a sign of a lack of confidence. The banking sector in Europe and the United States has just experienced two weeks of severe turbulence marked by the bankruptcy of the Californian Silicon Valley Bank (SVB), then of two other American regional banks as well as the rescue of Credit Suisse via its forced takeover by UBS.

First German bank

Financial hedging instruments now indicate a probability of default for Deutsche Bank of 27.4% in the next five years, and 19.3% for Commerzbank. For Barclays and Société Générale the probability is lower according to these tools, being around 13%. Some of the so-called obligationsAT1from Deutsche Bank, debt instruments similar to equity, were also sold, pushing up their yield.

Bank-issued AT1s have generally been under pressure since Credit Suisse was forced to write down $17 billion worth of such securities as part of UBS’s forced buyout last weekend. “Judging by moves in CDS, AT1s and Deutsche Bank’s share price, investors are worried about the health of the bankwrites Stuart Graham, analyst at Autonomous, on Friday.

The expert nevertheless specifies that he has “notno worries about viabilityof the first German bank, which notably has a solid liquidity cushion. “To be clear, Deutsche Bank is NOT the next Credit Suisse“, he concludes. Despite the strong current turbulence, the confidence of “PR” depositors in European banks, which are deemed to be solid, said Tuesday Andrea Enria, president of the single supervisor of large banks within the European Central Bank (ECB).

You may also like

Leave a Comment