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Deutsche Bank shares plunge as cost to insure against default spikes

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Deutsche Bank is the latest financial institution to face significant pressure in March 2023, as its share price has fallen around 25% over the past month as of Friday, March 24. The harsh spotlight on Germany’s largest bank comes as the cost to insure the bank’s debt against default spiked to multi-year highs on Friday, March 24.

According to data from Refinitiv, the price of the bank’s credit default swaps – a type of insurance for bondholders – had its largest one-day spike on record on Thursday, March 23, but was still far below levels of the previous global financial crisis.

The global banking industry has been in turmoil since U.S.-based Silicon Valley Bank failed on March 10. The ripple effect traveled across the pond to Europe, leading to an emergency government-orchestrated buyout of Switzerland’s second-largest bank, Credit Suisse.

On March 19, UBS Group agreed to buy its struggling rival in a deal worth $3.25 billion. Credit Suisse has faced its share of troubles for years, but the stunning end to the 166-year-old institution continued to shake markets, as evidenced by Deutsche Bank’s latest troubles.

“Deutsche Bank is one from a global standpoint that has had trouble for years that you could almost put in a similar category, meaning they’ve just had problem after problem like Credit Suisse has,” a former Credit Suisse director Hal Lambert said Monday, March 20. “So I don’t know whether they have a risk of liquidity problem right now or not. But they’re certainly under a lot of pressure.”

That pressure came to fruition as Deutsche Bank saw $3 billion in market value wiped away in a week. But German Chancellor Olaf Scholz insisted Friday, March 24 the financial system is stable.

“Deutsche Bank has thoroughly reorganized and modernized its business model and is a very profitable bank. There is no reason for concern whatsoever,” Scholz said.

Deutsche Bank began a restructuring process in 2019 to reduce costs and improve profitability.


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SIMONE DEL ROSARIO: we’re talking about a real pressure cooker situation when it comes to the banking industry across the globe, Credit Suisse has specific demise seems tied to the annual report that came out last week that declared the bank had material weakness and its financial reporting. And with the sentiment going on with banks, it was just a terrible timing for them. Do you think that there are more institutions out there that have cracks like this that will become casualties of the banking turmoil happening?

HAL LAMBERT: Well, sure, I mean, Deutsche Bank is one from a global standpoint that has had trouble for years that you could almost put in a similar category, meaning they’ve just had problem after problem like Credit Suisse has. So I don’t know whether they have a risk of liquidity problem right now or not. But but they’re certainly under a lot of pressure. And then if you look at the United States, I mean, there’s about 4000 banks in the United States. So you know, I read that there’s about 200 of those that could have some problems. You’ve got to figure with that number. You’re going to have one or two at least more banks that are going to have similar problems to Silicon Valley. And then what’s the, what’s the Fed going to do? Are they going to let depositors at those banks lose their money and start picking winners and losers at the regional bank level, you know that that’s a real problem that that will create a lot of uncertainty around the US system as well.