Deutsche Bank shares plummet as cost of default cover rises

Shares in Deutsche Bank dropped more than 14 per cent on Friday as nerves in the industry continued to fray.

European bank shares slumped Friday, sending stock markets tanking as contagion fears erupted once more after a raft of global interest rate hikes.

At one point, Frankfurt’s Deutsche Bank shares nosedived more than 14 per cent while German rival Commerzbank tumbled by 10 per cent.

In Paris, major bank Societe Generale shed nearly 8 per cent and BNP Paribas lost around seven per cent in value.

And in London, UK banks Barclays, NatWest and Standard Chartered tumbled about 6 per cent.

But by the end of the day some shares had recovered. Deutsche Bank shares were down 8.5 per cent when trading ended with concerns about its link to embattled bank Credit Suisse.

The cost of insuring the bank’s debt against a risk of defaulting — so-called credit default swaps — has surged as investors fret about the banking sector’s health.

German Chancellor Olaf Scholz however offered reassurances about Deutsche Bank, saying the lender had “modernised and organised the way it works. It’s a very profitable bank. There is no reason to be concerned”.

Speaking in Brussels after a summit of EU leaders, he also said the European banking system was “stable”, with strict rules and regulations.

Commerzbank recovered to close at 5.45 per cent lower

New York’s Dow Jones index was down 0.2 per cent and the Nasdaq slipped by 0.6 per cent. Regional bank First Republic, which has been under scrutiny, was 1.3 per cent lower.

German bank Deutsche Bank saw its share price slide. (Photo by Tolga Akmen / AFP)

‘Contagion risk’

Investor panic also sent oil prices sliding about three per cent on weaker demand fears owing to a possible recession.

Share prices in energy majors including BP, Shell and TotalEnergies also tanked. The haven dollar surged against the euro and pound.

“The sell-off in banks has resumed, highlighting just how fragile sentiment is towards the sector,” City Index analyst Fiona Cincotta told AFP.

“As central banks continued hiking rates this week the outlook is looking increasingly shaky.

“Deutsche Bank has come under the spotlight as a possible target for contagion risk,” she added.

On another note:
Signature Bank ❌
Silvergate Bank❌
Silicon Valley Bank❌
Credit Suisse❌
And now Deutsche Bank is in trouble as its CDS' spiked...
Shares Down over 11% today (so far)- Down for a 3rd day
Bank's shares have fallen over 20% this month pic.twitter.com/oHFnT3BfQn

— Arabile Gumede (@ArabileG) March 24, 2023

Investors feeling very nervous about European banks again this morning

Shares in Deutsche Bank - which has more than a trillion dollars of assets - have dropped 12% pic.twitter.com/PcMxS69ifT

— Harry Robertson (@harrygrobertson) March 24, 2023

Indices in the key European capitals plummeted by more than two per cent, after earlier losses across Asia.

Central banks pressed on this week with monetary tightening to bring down high inflation – even though the troubles in the banking sector have been linked to their interest rate hikes.

The region’s indices had wobbled Thursday as investors weighed rate hikes in Britain, Norway and Switzerland.

That came one day after the US Federal Reserve ramped up borrowing costs, and one week after a hefty increase from the European Central Bank.

Friday’s fresh market woes overshadowed news of an upbeat survey showing eurozone economic growth hit a 10-month high in March.

Shockwaves

Global markets were slammed earlier this month by the collapse of three regional US lenders, notably Silicon Valley Bank.

Switzerland’s enforced UBS buyout of embattled Credit Suisse last weekend sent further shockwaves across trading floors.

“Contagion fears are not yet going away,” warned Finalto analyst Neil Wilson. “It only stops once people stop asking who’s next. And it does not seem like we are at that stage yet.”

Some investors are however hopeful that central banks could be nearing the end of their interest rate-hiking cycle.

Commerzbank also suffered. (Photo by Amelie QUERFURTH / AFP)

Pledges by global authorities to provide support to troubled lenders and depositors provided some stability.

The turmoil has also forced the Fed and others to change their monetary policy game plan to avoid further problems in the finance industry.

On Wednesday, the Fed announced a quarter-point rate hike – half what was expected before the latest upheaval – and indicated it could pause soon, while there is growing talk it could even begin cutting by year’s end.

Observers said an expected tightening of credit in the finance sector – caused by wary banks lending less – would allow the Fed to step back.

But data indicating the US jobs market remained tight highlighted the need for the Fed to stick to its policy of battling prices.

There was a spot of bright news, with inflation slowing in Japan. Japanese consumer prices rose 3.1 per cent in February to slow from recent four-decade peaks, official data showed.

The Bank of Japan sees inflation as the result of temporary factors, including Ukraine, Ukrainian war, and sees no reason to raise interest rates.

Originally published as Deutsche Bank shares plummet as cost of default cover rises