Only today i Credit default swap of Deutsche Bank, which represent its bondholders’ insurance against a potential default, increased by 31%. During yesterday’s session yields on bonds Tier2 of Deutsche Bank had soared reaching 9%, a decidedly high value for this type of instrument.
Deutsche Bank is not Credit Suisse
But why this collapse? Second Stuart Graham, analyst at Autonomous Research, investors are concerned about its exposure to the US commercial real estate sector and its large portfolio of derivatives. Yet both are “well known” and “just not very scary,” he added in a statement.
The lender recently emerged from a four-year turnaround plan that included thousands of job cuts and exiting much of the investment bank. The CEO Christian Sewingwho took over in 2018, has even explored a takeover of its German rival Commerzbank in 2019 at the urging of the German government, before deciding against such an agreement. “We have no doubts about Deutsche’s viability or asset marks,” Graham wrote. “To be clear, Deutsche is not the next Credit Suisse.”
Beware of leveraged loans
There are certain aspects of Deutsche Bank’s business on which the attention of the market and regulators is focused. One of these is that of leveraged loans (leveraged loans), i.e. those granted by the investment banking divisions, above all in the context of debt acquisitions by private equity. It’s a lucrative but risky business, like Bce did not miss an opportunity to reiterate.
On the other hand, in the years of zero interest rates, leveraged finance was a profitable channel for many institutions in Northern Europe, which often granted credit to already heavily indebted individuals. This is the case with operations takeover made by private equity funds which, up to the beginning of 2022, have proved to be a very valuable source of profits for investment banking divisions.