Deutsche Bank: the next Credit Suisse?
The fear that the number one bank in Germany whether it fell into a crisis similar to the one that brought the Swiss bank close to bankruptcy, forcing the Swiss government and the Swiss National Bank to step in and marry it off to UBS, haunts the minds of market participants.
But does it make sense to make such a comparison?
The word to analysts, after the thud of the Deutsche Bank stock last Friday, which has infected the European stock exchanges sinking bank stocks.
Of course, the announcement of the same bank which, to appease the anxiety about its survival, has decided to buy back some of its riskier bonds he managed to quell the fears of the markets, which were beset by doubts about the institution’s ability to repay its bonds.
On the other hand, the previous dei Credit Suisse’s $17 billion AT1 bond pulverized and, even earlier, the return of the specter of the collapse of Lehman Brothers afterwards the bankruptcy of SVB (Silicon Valley bank) and Signature Bank these have all been elements which, over the past two weeks, have created more than fertile ground for panic to explode.
Deutsche Bank paid most of all the leap in CDS, credit default swaps, contracts to insure against the risk of default, in this case relating to German bank bonds with a five-year maturity.
CDS anxiety: the comparison with UBS and Credit Suisse
I cds flew up to 203 basis points in last Thursday’s session, according to data reported by S&P Market Intelligence, at the highest level since the beginning of 2019.
Below, the graph summarizing the leap in Deutsche Bank’s CDS, and which makes a comparison with i credit default swap of other major banks, the likes of Goldman Sachs, Morgan StanleyStill UBS from Credit Suisse, BNP Paribas.
But is the panic justified or not?
He talks about it in the article “Panic Around Deutsche Bank Being The ‘Next Credit Suisse’ Spreads“ (‘Panic spreads that Deutsche Bank is the ‘next Credit Suisse’) the site The Street, calling several analysts to report.
“There is no evidence of a deposit leak from Deutschefactor that decreed the fate of Credit Suisse”, commented Nils Pratley to The Guardian – nor, at least based on what we know, the European Central Bank is anxious about Deutsche in the same way that the Swiss authorities were when they made available to Credit Suisse a liquidity of 50 billion francs”.
From JP Morgan also note that the biggest difference between Deutsche Bank and Credit Suisse is that the German banking giant managed to complete the restructuring process that began long before the banking crisis hit the markets.
In the case of the Swiss bank, however, the lights had been turned on for some time “intense mode on liquidity risk”.
In fact, the giant led by the CEO Christian Sewing has made some steps forward: behind it it can boast 10 consecutive quarters of profits, and a remarkable recovery of capital.
A clarification in this regard came from strategists Stuart Graham and Leona Li of the research firm Autonomous, a subsidiary of AllianceBernstein who, last Friday, referred to the bank’s “strong capital and liquidity positions”, pointing out that “our rating underperform on the stock is simply due to our view that there are stories of much more attractive stocks in the sector. And that, ultimately, to be clear, “Deutsche Bank IS NOT (written in large letters) the next Credit Suisse”.
That said traders, by their very nature, as Bruce Kamich wrote for TheStreet’s RealMoney section, “traders do”. And therefore “first they sell, then they ask themselves some questions”.
As a result, “it is likely that Deutsche Bank will remain under pressure”.
Deutsche Bank the weak link of EU banks?
However, there are those who have pointed out, with a post on Twitter which, rather surprising, is the fact that Deutsche Bank did not blow up before Credit Suisse.
It’s about the banker Richard Christopher Wallen, which sees in the giant DB the weak link in the banking system of the European Union, in spite of the reassurances that promptly arrived from German Chancellor Olaf Scholz and by the number one of the ECB Christine Lagarde.
In particular, Lagarde allegedly told European leaders last Friday that, in her view, “the euro area banking sector is solid, as we have applied globally agreed reforms to each institution after the Global Financial Crisis“.
In any case, Lagarde reassured, “the ECB’s toolbox is fully equipped to provide liquidity to the financial system of the euro area, in case of need“.
In last Friday’s session, Deutsche Bank shares plunged as much as -14.5% before trimming losses and closing down 8.5%.
Thump also for At1 bonds
In spite of the bond buyback announced by the same lender (on Tier 2 bonds), i bond AT1 di Deutsche Bank they continued to point lower, as the yield jumped to 16%.
The selling was also fierce against UBS and Credit Suisse stocks which discounted, in addition to doubts about the effectiveness of their integration and the domino effect unleashed by the Deutsche Bank news, also the rumors related to the grain of Russiawho ended Friday’s session down 3.6% and 5.2% respectively.
Thus, interviewed by CNN, he commented on the Deutsche Bank case Michael HewsonLead Market Analyst at CMC Markets:
“The increase in CDS is weighing on Deutsche Bank, as well as on other European banksin the wake of concerns about the impact that the increase in interest rates will have on the economy and on banks’ balance sheets”.
In this regard, some might point polemically to the continuous increases in interest rates in the Eurozone that Lagarde’s ECB is continuing to pursue. The last time was last Thursday 16 March when the Eurotower ha raised rates another 50 basis points.