Deutsche Bank shares drop 13% as global banking crisis anxieties swell

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Deutsche Bank shares plunged 13% on Friday after the German lender learned it would have to pay higher rates to insure its bondholders against default.

Deutsche Bank stock is likely to decline for a third day in a row as concerns over the stability of the global banking system grew following the recent emergency rescue of Credit Suisse by rival UBS as well as the collapse of US-based lenders Silicon Valley Bank and Signature Bank. Is. of New York.

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Dow futures fell more than 270 points before the opening bell on Friday, while the S&P 500 and Nasdaq also looked to retreat on Wall Street.

Investors reacted on Friday to news that Deutsche Bank’s credit default swap, a type of insurance offered to debt holders against a company’s default, rose from 142 basis points on Wednesday to 173 basis points on Thursday. Done.

As of Friday morning, the bank’s CDS again exceeded 200 basis points, according to data from S&P Market Intelligence.

So far this month, Deutsche Bank’s stock has fallen by a fifth of its former value.

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Deutsche Bank’s troubles have sent shockwaves across the banking sector.

Investors were spooked by a sharp rise in the cost of Deutsche Bank’s credit default swaps.

reuters

Shares of First Republic Bank, the San Francisco-based regional lender whose shaky balance sheet prompted $30 billion worth of capital from 11 of the nation’s largest lenders, were down about 6% in pre-market trading.

PacVest, another regional lender that has seen its stock price slide, was down more than 8% before Friday’s opening bell.

“Deutsche Bank has been in the headlines for some time now, just as Credit Suisse used to be,” said Stuart Cole, principal macro economist at Equity Capital. told Reuters.

“It has gone through several restructurings and changes of leadership in attempts to get it back on a solid footing, but so far none of these efforts have really worked.”

Bondholders of Deutsche Bank loans were also running for cover on Friday.

The global banking system was shaken by the emergency takeover of Credit Suisse by UBS.

The lender’s 7.5% Additional Tier-1 dollar bonds on the dollar fell nearly 3 cents to 72.868 cents, pushing the yield to 24%.

That yield is more than double what it was just two weeks ago, based on Tradeweb data.

The AT1 bonds are the same debt instruments held by investors who wrote down a total of $17 billion as part of UBS’s $3.2 billion rescue of Credit Suisse.

Investors were upset earlier this week when Treasury Secretary Janet Yellen refused to guarantee “blanket insurance” to all depositors — clearly backtracking from earlier statements.

Yellen’s comments coincided with efforts by Fed Chair Jerome Powell to reassure Americans that it was safe to leave their money in bank accounts.

Treasury Secretary Janet Yellen on Wednesday refused to guarantee “blanket insurance” to all US bank depositors.

“When there is a threat of serious damage to the economy or the financial system, we have the tools to protect depositors,” Powell said.

“Depositors should assume that their deposits are safe.”

Yellen’s comments to the US Senate Appropriations subcommittee on Wednesday came the same day Powell announced a quarter-point interest rate hike despite economists’ warnings that it could have an adverse effect on an unstable banking system.