Frankfurt, Germany –
Deutsche Bank shares plunged Friday, trailing other major European banks and leading German Chancellor Olaf Scholz to the country’s biggest after fears over the global financial system sent new tremors to markets. He expressed confidence in the lender.
Deutsche Bank shares closed down 8.5% after falling as much as 14% on the Deutsche Börse. This was followed by a surge in costs to insure bondholders against bank defaults, known as credit default swaps.
Rising costs of insuring debt also portended a government-backed bailout by rival UBS for Swiss lender Credit Suisse. The hastily arranged acquisition was meant to stem the turmoil in the global financial system after two of his banks in the United States collapsed, and fears over long-term problems at Credit Suisse sent stocks crashing and customers losing money. withdrew funds.
Asked if Deutsche Bank would be the next Credit Suisse, Scholz said: “There is no reason to worry.”
“Deutsche Bank has completely modernized and restructured its business to become a highly profitable bank,” Scholz said after the EU summit in Brussels.
Like Credit Suisse, Deutsche Bank is one of the 30 most important financial institutions in the world, and because failure could lead to widespread losses, international rules mandate higher levels of capital reserves. must hold.
Other major European banks also fell on Friday, with Germany’s Commerzbank down 5.45%, France’s Societe Generale down 6% and Austria’s Raiffeisen down 7.9%.
Markets have been rocked by fears that other banks will run into unforeseen trouble like the US-based Silicon Valley Bank.
Credit Suisse’s troubles, including a US$5.5 billion loss in transactions with private investment funds, predated the failures of Silicon Valley Bank and Signature Bank, but the U.S. failure put the bank and major Credit Suisse banks in turmoil. Depositors and investors fled when unfriendly attention was directed at them. Investors refused to provide any further funding.
Deutsche Bank has improved its fortunes under CEO Christian Sewing, posting 10 consecutive quarters of profit, including €5.7 billion (US$6.1 billion) last year.
Prior to that, it had experienced a long period of low profitability and trouble with regulators dating back to the 2008 global financial crisis, and was sued by U.S. authorities for misleading buyers of complex mortgage-backed securities72. I was fined $100 million, but it got worse later.
Sascha Steffen, a professor at the Frankfurt School of Finance, says that despite the backlash under Sewing, banks are still plagued by previous troubles, large and sometimes complex holdings and market skepticism about future profits. He said it was “a natural candidate” for a market sell-off because of that. & management.
The market is valuing banks lower than assets on their balance sheets, he said: “It’s up to investors to see what risks banks still have on their balance sheets or their future earnings potential.” It means that you are very worried about
Big global banks have sold more than smaller ones amid the recent financial turmoil, he said.
“It’s contagious. It’s a lack of confidence, a lack of trust,” Steffen said.
The sell-off “may be more emotional than factual, so to speak, but based on history and performance after the global financial crisis, this should have been expected,” he said.
Davide Oneglia of investment strategy research firm TS Lombard said it was no surprise that “the next bank is now Deutsche Bank”. In the past, he was associated with Credit Suisse, which despite his recent gains was due to “managerial/strategic missteps and involvement in numerous financial scandals.”
“We will determine if this is just a reflection of investor anxiety at the end of a very stressful week, technical market factors or a sign of further problems for the weakest European banks. It is still too early for
But the fall in European bank stocks “seems to be more related to lack of confidence than fundamentals.”
“German stocks are doing well,” said Stuart Graham and Leona Lee, analysts at global financial research firm Autonomous.
“We are relatively relaxed given Germany’s strong capital and liquidity position,” they said.
The derivatives held by the firm—often complex investments whose prices are tied to other assets—are “well-known” and “not that scary in our view,” Graham and Lee said. said Mr.
European officials say banks in the European Union’s regulatory system, which does not include Credit Suisse, are resilient and have no direct ties to Silicon Valley and few direct ties to Credit Suisse. there is
Efforts to tighten bank regulation in recent years “put us all in a position to say that European banking supervision and financial systems are strong and stable, and that European bank capital is resilient,” Scholz said. said Mr.
European leaders, who downplayed the risk of a possible banking crisis at their summit on Friday, say the financial system is in good shape. This is because they have to comply with a wider range of stricter requirements to have cash on hand to cover their deposits.
International negotiators agreed to these rules after the 2008 global financial crisis triggered by the collapse of US investment bank Lehman Brothers. U.S. regulators have exempted mid-sized banks from these protections, including Silicon Valley Bank.
But that hasn’t stopped investors from selling shares amid more public concerns about how global banks will weather the current rising interest rate environment.
Higher interest rates should boost profits for banks because they make more money than they pay for deposits, but unless banks take precautions to hedge those investments, some Long-term investments can lose value rapidly and cause losses.
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AP reporter Geir Moulson contributed from Berlin.
