Shares of Deutsche Bank fell 13% due to a sharp rise in the price of credit default swaps

This morning, March 24, shares of one of the largest banks in the eurozone, the German Deutsche Bank, fell in price by 13%. The bank’s shares have fallen for the third day in a row, and since the beginning of March it has lost about 20% of its value. The immediate reason for the current decline was the sharp rise in the value of Deutsche Bank credit default swaps, from 142 basis points to more than 200 basis points. This is the highest since 2019. Credit default swaps CDS (credit default swaps) are insurance contracts under which sellers of credit protection agree to pay the buyer (usually a bank) a certain amount in the event of an event specified in the transaction. For this service, the creditor buyer pays the CDS seller a premium. The rise in the cost of CDS means that creditors have doubts about the company’s ability to service its debt obligations, in this case, Deutsche Bank.

In 2019, this bank had to start a deep restructuring due to the internal crisis. However, things have improved since then: Deutsche Bank finished 2022 with net income doubling to €5 billion. Now its shares are falling amid a general increase in instability in the banking industry after bankruptcy the American Silicon Valley Bank, as well as the problems of the Swiss Credit Suisse, which led to its purchase by another Swiss bank – UBS. Investors are also concerned about how banks could be affected by further tightening monetary policy in different countries. “Deutsche Bank has been in the spotlight for some time now, as was the case with Credit Suisse. It went through reforms in an attempt to get it back on a solid footing, but so far it seems that none of these attempts have actually worked,” said Stuart Cole, chief macro economist at Equiti Capital, commenting on the situation around the bank.

Shares of other banks also declined on Friday. Shares of Commerzbank fell more than 8%, Societe Generale – 7.5%, UBS – 6%, Credit Suisse – 4.7%. The European Banking Index fell 5.6%. “Market participants are still wondering if the instability in the banking sector is over or if the ‘contagion’ will spread further,” says Mobin Tahir, director of macroeconomic research and tactical solutions at WisdomTree Europe.

What are the consequences of the collapse of the Silicon Valley bank for the world of finance and venture capital – in the publication “Kommersant” “Crisis of the modern type”.

Yana Rozhdestvenskaya