Dhe share price of Deutsche Bank recovered by 6.5 percent on Monday. Nevertheless, the drop of 8.5 percent on Friday was not entirely made up for. The nervousness of the market is also reflected in the continued high risk premium of 1.9 percentage points for credit default swaps (CDS). Securing a claim of EUR 1 million costs investors an annual premium of EUR 19,500 for Deutsche Bank, while it would require EUR 9,886 for the American JP Morgan and EUR 7,263 for the French BNP Paribas.
Even if the risk premium has fallen sharply compared to the 2.27 percentage points reached on Friday, it remains the highest for a major European bank. This means that financing transactions with Deutsche Bank are significantly more expensive than with competitors, which cannot please the CEO Christian Sewing. In order to quickly catch up with the competition again, the public support of Federal Chancellor Olaf Scholz should not be enough. He had said on Friday that Deutsche Bank was very profitable.
Negative headlines as a risk
Sewing received support from several analysts on Monday. Nicolas Payen from Kepler Cheuvreux, for example, attested to very solid fundamental data for Germany’s largest bank. “Deutsche Bank is not the weak link in the European banking landscape,” he stressed. Roland Pfänder, analyst at Oddo BHF, referred to the realignment of the business model combined with a reduction in risk. In his view, this enables the institute to be less volatile and at the same time more profitable.
Citigroup analyst Andrew Coombs rated Deutsche Bank’s price development as “irrational”. For him there is also no reasonable explanation for the increased CDS risk premium. In this market, prices tended to be more volatile, Coombs recalled. Nevertheless, he sees a high risk for customer and investor sentiment in negative headlines, as was recently the case with the major Swiss bank Credit Suisse.
Stuart Graham, an analyst at British research firm Autonomous, had already confirmed on Friday that Deutsche Bank would not be the next Credit Suisse. As this newspaper reported, he classifies the credit risks in American commercial real estate as bearable. Citigroup analyst Coombs cannot see any greater danger here either.
The recently very strong price fluctuations of the Deutsche Bank share are also due to the increased bets by hedge funds on price losses. The news agency Bloomberg, based on statistics from the data provider IHS Markit, reported that short positions at Deutsche Bank reached 2.6 percent of the outstanding shares last week, the highest level since mid-2022. In February it was less than 1 percent.
With short sales, speculatively oriented investors are betting on price losses. This can be done through stock lending transactions: the stocks are sold in the expectation that they will be returned to the original owner at a later date and at a lower price. The difference between the sell price and the lower price at the time the loan is terminated is then the profit. At Deutsche Bank, according to the financial data provider Ortex, the calculation worked: the short sellers had made a profit of around 100 million dollars in the past two weeks.
The fact that Deutsche Bank quickly becomes a target of attack in times of great nervousness in the banking sector is thanks to its difficult past after the financial crisis. Scandals, legal disputes and fines running into the billions had plunged the institute into the worst crisis of its existence. Only the realignment initiated by Sewing in the summer of 2019 has borne fruit: last year, the bank achieved the highest result in 15 years with a net profit of 5 billion euros.
Other bank shares were also able to recover on Monday from the price losses of the past few weeks. The Commerzbank course increased by 4.2 percent. The European Stoxx banking index rose by 1.4 percent. The news that the US bank First Citizens is taking over all deposits and loans from the collapsed Silicon Valley Bank (SVB) caused confidence. The SVB imbalance had triggered the bank quake on the stock exchanges a good two weeks ago.
