After Credit Suisse was rescued by UBS bank,investors are worried about any spillover effect on other European banks.
The share price of Deutsche Bank plunged over 11% on Friday (24th March 2023) as the investors are moving to a safe bet.
Deutsche Bank has never recovered from its high on April 1, 2007, rather the stock has fallen almost 95% since then.
What is happening?
The euro is falling against the dollar, euro zone government bond yields sinking, and the costs of insuring against bank defaults surging.
Deutsche’s five-year credit default swaps (CDS) surged to 203 basis points on 23rd March 2023 and rose again on the next day to trade at 208 basis points at midday ET.
Deutsche Bank was the eighth largest bank in Europe with total assets of 1.3 trillion euros in 2022.
Founded in 1870, the bank has 85,000 employees in 2022, about half of whom were overseas.
The bank has undergone major restructuring over the last 4 years.
In July 2019, Deutsche Bank unveiled a second phase of layoffs with 18,000 jobs were to be axed by 2022.
Deutsche Bank has multiple and diversified sources of funding including retail and corporate deposits from different geographies, short-term and medium-term credit lines, as well as access to wholesale funding.
More Stable than Credit Suisse & SVB
Is the banking crisis not over yet?
"Looks like the banking crisis hasn't been entirely put to bed," Chris Beauchamp, chief market analyst at IG Group, told Reuters. "We are still on edge waiting for another domino to fall, and Deutsche is the next one on everyone's minds (fairly or unfairly),”
However .....
German Chancellor Olaf Scholz has also dismissed the panic, saying in a news conference that Deutsche Bank had "thoroughly reorganized and modernized its business model and is a very profitable bank." "It's a very profitable bank. There's no reason to worry,"
Again.....
JPMorgan strategists said that Deutsche Bank "had its share of headline pressure and governance fumbles," but that it "still commands a relatively elevated cost base and has relied on its FICC (fixed income, currencies, and commodities) trading franchise for organic capital generation and credit re-rating."
Should Deutsche Bank disclose all granular information about its current liquidity levels, sources of funding, capital ratios, etc. to calm the investors?
Government should pressurize all the major banks to come up with all the details in the coming days to restore confidence in the banking system.
What Next? Wait and Watch!
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