The 15% fall in Deutsche Bank’s share price and the sharp rise in the cost of insurance against the possibility of default suggest that tensions in the banking sector continue.
“This is a clear case of the market selling first, asking questions later. There is still a huge fear that the banking crisis could turn into a risk-reducing episode in the markets,” Paul de la Baum, a strategy analyst at FlowBank, told Bloomberg.
But why is the market targeting Deutsche Bank? Germany’s largest bank, which has endured a series of crises in recent years, is an obvious target when traders look for the next weak link among systemically important names.
Deutsche Bank tried to bolster investor confidence in its balance sheet by announcing early redemption of second level subordinated bonds. However, the dynamics of its stock prices indicate that investors did not understand this message. Its shares lost about 15%, the biggest drop since the sell-off at the start of the pandemic, and wiped out any gains it has made since the beginning of the year.
Why do investors sell? According to Stuart Graham, an analyst at Autonomous Research, concerns appear to be centered on his exposure to US real estate activities and a large portfolio of derivatives. However, both of these factors are “well known” and “not particularly frightening.”
Deutsche Bank recently completed a four-year reorganization plan that saw it go through thousands of layoffs and scale back investment banking. Its CEO Christian Sewing, who took over the bank in 2018, was considering a takeover of rival Commerzbank in 2019 at the request of the German government, but decided against the deal.
“Deutsche Bank is NOT the next Credit Suisse,” says Autonomous Research’s Graham, according to Bloomberg. “We have no concerns about Deutsche’s solvency.”
“When bank stocks take a beating like they did today, Deutsche Bank is likely to be hit the hardest,” Morningstar analyst Michael Field said in an interview with Business Insider. investor skepticism about the quality of the bank.
German Chancellor Olaf Scholz assured that Deutsche Bank is a very profitable bank and there is no reason to doubt its future, reacting to the sharp drop in the German bank’s share price: “Deutsche Bank has completely reorganized and modernized its business model and is a very profitable bank.”
Scholz loves to make statements, as does his Greek counterpart Kyriakos Mitsotakis. But the experience of both the Greeks and the Germans more and more often shows that the statements of politicians are not even worth the paper on which they are printed …
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