- Shares of the German lender fell for the third straight day and have lost more than a fifth of their value so far this month.
A logo is seen above the Deutsche Bank AG headquarters at Aurora Business Park in Moscow, Russia.
Andrei Rudakov | Bloomberg | Getty Images
Shares of Deutsche Bank fell more than 9% in early trade on Friday after credit default swaps jumped Thursday night amid ongoing concerns over the health of European banks.
Shares of the German lender fell for the third straight day and have lost more than a fifth of their value so far this month. Credit default swaps – a form of insurance for a company’s bondholders against its default – rose to 173 basis points Thursday night from 142 basis points the previous day.
The emergency rescue of Credit Suisse by UBS after the collapse of the US Silicon Valley bank has sparked contagion concerns among investors, which were compounded by further monetary tightening by the US Federal Reserve on Wednesday.
Deutsche Bank’s Additional Tier One (AT1) bonds — an asset class that made headlines this week following the controversial write-down of Credit Suisse’s AT1 bonds as part of its bailout deal — also sold off sharply.
Deutsche led broad declines in major European bank stocks on Friday, with Commerzbank, Credit Suisse, Societe Generale and UBS all falling more than 5%.
Financial regulators and governments have taken action in recent weeks to contain the risk of contagion from the uncovered woes of individual lenders, and Moody’s said in a note on Wednesday they should be “broadly succeeding”.
“However, in an uncertain economic environment and continued weak investor confidence, there is a risk that policymakers will not be able to stem the current turmoil without prolonged and potentially severe repercussions inside and outside the banking sector,” according to the rating agency’s credit strategy team said.
“Even before banking stress became apparent, we had expected global credit conditions to continue to deteriorate in 2023 due to significantly higher interest rates and slower growth, including recessions in some countries.”
Moody’s suggested that the longer financial conditions remain tight, the longer financial conditions remain tight, the longer central banks continue their efforts to boost inflation, the greater the risk that “stresses will spread beyond the banking sector and become larger financial and economic damage”.