The Stoxx 600 Banks index is the worst performing sector in Europe
German bank Deutsche Bank is at the center of another sell-off in financial stocks in the last trade of the week.
The lender’s shares fell by 13.68% to 8.04 euros at 12:55 p.m. Bulgarian time. Credit default swaps on the euro, Deutsche Bank’s main debt, jumped to their highest level since they were introduced in 2019, Bloomberg reports.
The books of other banks with high exposure to corporate lending also fell, with Commerzbank down 8.48% to 8.59 euros and France’s Societe Generale down 7.66% to 19.58 euros.
The collapse of Silicon Valley Bank and the emergency bailout of Switzerland’s Credit Suisse over the weekend spooked investors and raised questions about the broader stability of the financial industry at a time of rising interest rates and high inflation.
The moves follow stock market losses for US banks yesterday, which slumped even as Treasury Secretary Janet Yellen told lawmakers that regulators would be ready to take further steps to protect deposits if needed.
“The situation will not be resolved by reassuring words, but will only be softened by concrete facts and figures,” commented Andreas Lipkov, strategist at Comdirect Bank. “Therefore, patience is required and the upcoming quarterly data from the banks will be strictly scrutinized,” he pointed out.
Separately, Deutsche Bank’s second-tier subordinated bonds jumped to par on Friday after the lender unexpectedly announced its decision to buy back the bonds early.
The price of bonds maturing in 2028 fell to 90 cents after the Credit Suisse takeover. Although prices have recovered in recent days, they are still at around 94 cents, suggesting a strong possibility that Deutsche Bank will miss its call option.
The pressure on European banks comes as regulators and business executives tried to reassure traders about the health of the industry. UBS’s government-backed acquisition of Credit Suisse is “not an indication” of the state of European banks, Deutsche Bank board member Fabrizio Campelli told a conference call yesterday.
He also said the German lender’s retail deposits are “very diversified” and therefore do not have the kind of concentration risk that appears to persist at Silicon Valley Bank.
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“The bigger danger is the economic outlook and really how the economy and the financial system will deal with the recession,” said James Atty, chief investment officer at Abrdn. “Then there is more likely to be asset impairment. But, of course, the former can easily cause the latter, so the situation is fragile,” he pointed out.
