Deutsche Bank shares fall 9% after a sudden rise in the cost of insuring against defaults
- The German lender’s shares retreated for a third straight day and have now lost more than a fifth of their value so far this month.
A logo is on display above the headquarters of Deutsche Bank AG in the Aurora Business Park in Moscow, Russia.
Andrey Rudakov | Bloomberg | Getty Images
Deutsche Bank shares fell more than 9% in early trading on Friday after a surge in credit default swaps on Thursday night, as concerns about the stability of European banks persisted.
The German lender’s shares retreated for a third straight day and have now lost more than a fifth of their value so far this month. Credit default swaps – a form of insurance for a company’s bondholders against default – jumped to 173 basis points on Thursday evening from 142 basis points the day before.
The emergency rescue of Credit Suisse by UBS, in the wake of the collapse of US-based Silicon Valley Bank, has sparked contagion concerns among investors, which were reinforced by further monetary policy tightening by the US Federal Reserve on Wednesday.
Deutsche Bank’s ancillary bonds (AT1) – an asset class that hit the headlines this week after the controversial write-down of Credit Suisse’s AT1s as part of the bailout – also sold off strongly.
Deutsche led big decliners for major European bank stocks on Friday, with Commerzbank, Credit Suisse, Societe Generale and UBS all down more than 5%.
Financial regulators and governments have taken action in recent weeks to limit the risk of contagion from the problems facing individual lenders, and Moody’s said in a note on Wednesday that they “should be broadly successful” in doing so.
“However, in an uncertain economic environment and with investor confidence remaining fragile, there is a risk that policymakers will not be able to contain the current turmoil without long-term and potentially serious consequences within and beyond the banking sector,” the credit rating agency’s credit strategy. said the team.
“Even before bank stress became apparent, we had expected global credit conditions to continue to weaken in 2023 as a result of significantly higher interest rates and lower growth, including recessions in some countries.”
Moody’s suggested that as central banks continue their efforts to boost inflation, the longer financial conditions remain tight, the greater the risk that “the stress will spread beyond the banking sector, triggering greater financial and economic damage.”
