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Thursday, March 28, 2024

What's wrong with Deutsche Bank – Is it the next Credit Suisse?

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Why is the market targeting this bank in particular? Why are investors selling?

Τι συμβ αiνει με την Deutsche Bank – Εiναι η επoμενη Credit Suisse;

REUTERS/Dado Ruvic

Deutsche Bank's plunge of up to 15% and the surge in the cost of insurance against the possibility of bankruptcy suggest that the tensions in the banking sector have not passed.

“It is a clear case where the market first sells and then he asks questions. There is still a huge concern that the banking crisis could develop into a risk off episode in the markets,” Paul de la Baume, strategic analyst at FlowBank, tells Bloomberg.

Concerns center on its exposure to US real estate and its large derivatives portfolio, according to an analyst at Autonomous Research

But why is the market targeting Deutsche Bank in particular? Germany's biggest bank, which has been through a series of crises in recent years, is an obvious target as traders search for the next weak link among systemically important names.

Deutsche Bank sought to boost investor confidence in its balance sheet by announcing the early repayment of its tier 2 subordinated bonds. But the course of its stock shows that investors did not get the message.

Its stock ended up losing about 15%, marking the biggest drop since the sell off at the beginning of the pandemic and erasing the gains it had been showing since the beginning of the year.

Why do investors sell? Concerns appear to center on its exposure to US real estate and its large derivatives portfolio, according to Stuart Graham, an analyst at Autonomous Research. However, as he states, both of these factors are “absolutely known” and “not particularly scary”.

Deutsche Bank recently completed a four-year restructuring plan that saw it cut thousands of layoffs and cut investment banking operations. Its CEO, Christian Sewing, who took over the reins of the bank in 2018, considered a takeover of rival Commerzbank in 2019 at the behest of the German government, but decided not to go ahead with the deal.

“Deutsche Bank is NOT the next Credit Suisse,” said Graham of Autonomous Research, according to Bloomberg. “We don't have any concerns about Deutsche's solvency.”

“When bank stocks are hit, as they are today, Deutsche Bank will probably take a bigger hit than the others,” Michael Field tells Business Insider. , a Morningstar analyst. “Deutsche Bank has been through a long period of restructuring, selling toxic assets throughout, but there is still some investor wariness around the quality of the bank.”

German Chancellor Olaf Scholz assured that Deutsche Bank is a very profitable bank and there is no reason to question its future, thus responding to the steep fall in the German bank's stock. “Deutsche Bank has completely reorganized and modernized its business model and is a very profitable bank.”

Source: www.kathimerini.com.cy

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