Deutsche Bank’s shares slide 14% as bets it will default on its debt soar
Deutsche Bank #DeutscheBank
Deutsche Bank shares dropped sharply Friday among signs that more and more traders believe it will default on its debt.
The German bank’s Frankfurt-listed shares plunged as much as 14.9% and were down 9.9% at just over 8 euros ($8.60) at last check, while its US-listed shares fell 7% to around $9 shortly after the opening bell.
The losses came after credit default swaps linked to Deutsche Bank’s bonds spiked to 173 basis points Thursday, from 142 basis points the day before — their largest one-day rise on record, according to data from Refinitiv.
Credit default swaps are a form of insurance against issuers not making scheduled payments on their debt, and the spike pushed the cost of this insurance up.
Other European bank stocks fell Friday as investors continued to fret about the health of the continent’s financial institutions.
UBS and France’s Société Générale both dropped 7%, while Germany’s Commerzbank fell 8%.
Deutsche Bank shares have shed over a quarter of their value in March alone, with Europe’s embattled banking sector still rocked by Credit Suisse’s rescue by UBS late last week.
The bank’s Additional Tier 1 bonds also sold off sharply Thursday. AT1s are higher-yield bonds that a bank can convert into shares if its financial health falls below a certain level.
Investors have been dumping the bonds — which are also known as contingent convertibles (CoCos) — after the Swiss regulator marked the value of Credit Suisse’s AT1s down from 16 billion francs ($17 billion) to zero when it collapsed. Yields on Deutsche Bank CoCos, which rise when prices fall, have tripled to around 27% over the past two weeks, according to data from Refinitiv.
“After the events of the last few weeks investors are clearly jittery, particularly when it comes to the banking sector,” Morningstar equity analyst Michael Field told Insider.
“Deutsche has been through a long restructuring period, selling off toxic assets along the way, but there is still some investor scepticism around the quality of the bank,” he added, referring to a restructuring process the bank started in 2019. “When banking shares are being beaten up, as they are today, Deutsche will likely take it worse than peers.”
Read more: Credit Suisse’s rescue had a sting in its tail for the banking crisis. Here’s what you need to know about AT1 bonds.