Deutsche Bank shares plunged Friday along with those of other European banks amid investor concerns over the stability of the global banking sector. The drop comes in the aftermath of Credit Suisse’s emergency bailout and follows losses by U.S. banks on Thursday.
Deutsche Bank credit default swaps jumped to a four-year high
European banks’ stock prices, especiallyDeutsche BankThis is due to persistent investor concern about the state of the banking industry on the Old Continent, in the UK, and around the world.
German stocks, which have lost a fifth of their value this month, plunged about 15% on March 24 to a five-month low, Reuters noted. The report noted that in just one week, Germany’s largest financial institution had seen $3 billion in value erased.
The drop follows a significant rise in the cost of securing bank debt against the risk of default. Deutsche’s credit default swaps reached more than 220 basis points, the highest level since late 2018; two days ago they were around 140 basis points.
Swaps also rose at other major European banks. Shares of Commerzbank, another German banking giant, France’s Societe Generale, and Spain’s Banco de Sabadell also plunged on Friday, Bloomberg reported.
Deutsche Bank has been in the spotlight following the recently announced takeover of government-backed Swiss Credit Suisse by rival UBS. Both groups are currently under scrutiny in connection with a U.S. Department of Justice investigation into whether the bankers helped Russian oligarchs evade Western sanctions.
Meanwhile, the Stoxx 600 index of European banks, which excludes Credit Suisse and UBS, fell more than 5%, approaching a monthly decline of nearly 20% after the most volatile trading week in a year.
Deutsche Bank suffered its biggest loss on Friday, prompting German Chancellor Olaf Scholz to react by refusing to draw comparisons with the Credit Suisse case. At the summit in Brussels, the chancellor was quoted by the Financial Times as saying:
Deutsche Bank has fundamentally modernized and restructured its business and is a very profitable bank. There is no need to worry.
The recent negative developments in Europe follow Thursday’s sell-off in U.S. banks amid turmoil in regional financial institutions. This despite Treasury Secretary Yellen saying that regulators are prepared to provide more deposit protection if needed to prevent contagion.
European financial authorities have assured us that banks are better capitalized and regulated now than they were before the last global financial crisis began. Trouble this year began with bank collapses in the U.S., including the crypto-friendly Silvergate Bank and Silicon Valley Bank.
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