LONDON, March 24 (Reuters) - Deutsche Bank shares (DBKGn.DE) tumbled on Friday after the cost of insuring the bank's debt against the risk of default shot to more than four-year highs, highlighting concerns among investors about the stability of Europe's banks. The region's banking sector has had a rough ride in the last week, with a state-backed rescue of Credit Suisse and turmoil among regional U.S. banks fuelling concerns about the health of the global banking sector. Deutsche shares, which have lost more than a fifth of their value so far this month, fell by as much as 14.9% on Friday to their lowest in five months. The shares were last down 13% at 8.13 euros ($9.16).
Germany's largest bank has seen $3 billion wiped off its market value in the space of just week. Deutsche Bank's credit default swaps (CDS) - a form of insurance for bondholders - shot up above 220 basis points (bps) - the most since late 2018 - from 142 bps just two days ago, based on data from S&P Market Intelligence. On Thursday, Deutsche CDS had their largest one-day gain on record, based on Refinitiv data. But they remain well below highs of close to 300 bps logged during the euro zone debt crisis in 2011. CDS for major European banks rose across the board on Friday, reflecting investors' reluctance to carry any risk on their portfolios going into the weekend. "Deutsche Bank has been in the spotlight for a while now, in a similar way to how Credit Suisse had been," Stuart Cole, head macro economist at Equiti Capital, said. "It has gone through various restructurings and changes of leadership in attempts to get it back on a solid footing but so far none of these efforts appear to have really worked." Deutsche Bank declined to comment when contacted by Reuters. German finance industry regulator BaFin had no comment. Some of Deutsche Bank's bonds meanwhile sold off too. Its 7.5% Additional Tier-1 dollar bonds fell nearly 6 cents to 70.054 cents on the dollar, pushing the yield up to 27%. . That yield is almost triple what it was just two weeks ago, based on Tradeweb data.
The emergency rescue of Credit Suisse by UBS, in the wake of the collapse of U.S.-based Silicon Valley Bank, has triggered contagion concern among investors. This was deepened by further monetary policy tightening from the U.S. Federal Reserve on Wednesday. Deutsche Bank underwent a multibillion euro restructure in recent years aimed at reducing costs and improving profitability. Deutsche Bank recorded annual net income of 5 billion euros ($5.4 billion) in 2022, up 159% from the previous year.
However, many analysts were left scratching their heads as to why the bank, which has posted 10 consecutive quarters of profit and boasts strong capital and solvency positions, had become the next target of a market seemingly in seek and destroy mode.
The emergency rescue of Credit Suisse by UBS, in the wake of the collapse of U.S.-based Silicon Valley Bank, has triggered contagion concern among investors, which was deepened by further monetary policy tightening from the U.S. Federal Reserve on Wednesday.
Central banks and regulators had hoped that the Credit Suisse rescue deal, brokered by Swiss authorities, would help calm investor jitters about the stability of Europes banks. But the fall of the 167-year-old Swiss institution, and the upending of creditor hierarchy rules to wipe out 16 billion Swiss francs ($17.4 billion) of Credit Suisses additional tier-one (AT1) bonds, left the market unconvinced that the deal would be sufficient to contain the stresses in the sector.
However, many analysts were left scratching their heads as to why the bank, which has posted 10 consecutive quarters of profit and boasts strong capital and solvency positions, had become the next target of a market seemingly in seek and destroy mode.
Fractional-reserve banking always carries risk, proportional to how over-extended any given bank is.