Dhe nervousness among bank investors is not abating: at the end of the week, Deutsche Bank in particular came under massive selling pressure. The shares of Germany’s largest money house slipped by up to 14.9 percent to 7.95 euros, as much as they were last during the stock market crash in March 2020. In the course of the afternoon, the price losses were somewhat limited.
Since the collapse of the Silicon Valley Bank in the USA and the start of the banking crisis a good two weeks ago, Deutsche Bank shares have lost around 30 percent – with around seven billion euros in market value disappearing into thin air. Deutsche Bank is currently worth a good 16.5 billion euros.
According to traders, the rapid increase in the CDS of the Frankfurt financial institution, i.e. the prices for hedging against defaults on bank bonds, caused unrest at the end of the week. According to the data provider S&P Market Intelligence, more than 200,000 euros had to be paid on Friday instead of 142,000 euros as on Wednesday to secure a 10 million euro package of Deutsche Bank bonds.
Scholz expresses his confidence
However, financial experts consider Deutsche Bank to be resilient. “We are relatively relaxed about the bank’s robust equity and liquidity positions,” analysts at Autonomous Research wrote in their analysis. “To be clear: Deutsche Bank is not the next Credit Suisse.”
Chancellor Olaf Scholz has also demonstratively expressed his confidence in the financial institution. “There is no reason to worry about anything,” Scholz said on Friday 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. The EU has established strict rules for supervision.
Since the emergency rescue of the major Swiss bank Credit Suisse by its rival UBS last weekend, many investors have been concerned that the crisis of confidence will spread to other financial institutions. CDS from other major financial institutions including UBS, Société Générale and Intesa Sanpaolo also surged on Friday. The shares of the second major financial institution in the Dax, Commerzbank, fell by 10.4 percent to 8.41 euros. At Coba, the stock market value fell by around four billion euros to 10.8 billion euros in the past two weeks.
Special bonds in focus
According to data from the online broker Tradeweb, the prices of Deutsche Bank’s equity-like bonds (AT1) also fell, which caused the yield to rise to 24 percent. So they yielded twice as much as two weeks ago. Bank equity-like debt has come under pressure since Credit Suisse was forced to write off 16 billion Swiss francs worth of AT1 debt to zero as part of its takeover by UBS. “The impact of the Credit Suisse write-down has raised questions about an important part of bank funding,” said Stuart Cole of wealth manager Equiti Capital.
Separately, Deutsche Bank announced earlier this morning that it would redeem $1.5 billion of subordinated debt ahead of its 2028 maturity on May 24. The institute will repay these so-called Tier 2 bonds with the ISIN number US251525AM33 at 100 percent of their nominal value with the interest accrued up to the redemption date.
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To the detailed view
Several EU heads of government, meanwhile, have shown some relaxation over the recent turmoil in the banking sector. “We learned our lesson after the banking crisis,” said Estonian Prime Minister Kaja Kallas before the start of the second day of the EU summit in Brussels. The European banking system is sufficiently resilient, she stressed, but called for improvements to be made to the European banking union.
Prime Minister Alexander De Croo said he saw “no risk at the moment”. The EU colleagues would say the same. The banks would have sufficient liquidity. “I think the recent rate hike by the European Central Bank shows that the ECB has confidence in the financial markets.” Regulation is different in the EU than in the United States. Slovakia’s Prime Minister Eduard Heger also dismissed the issue. “We have enough instruments to control the banking sector.” The institutions did a good job.
Bundesbank President Joachim Nagel said in turn that he believes that the European Central Bank (ECB) should not move away from higher interest rates too early in the fight against inflation. It is necessary to raise the key rates to sufficiently slowing levels so that the inflation rate returns to the target of two percent in time, Nagel said in a speech in Edinburgh on Friday, according to the manuscript.
“We should also keep policy rates sufficiently high for as long as necessary to ensure lasting price stability,” he said. Currently, inflation in the euro area is still far from the ECB’s target of two percent. In February, it was more than four times as high at 8.5 percent.