again, the financial system in the world had turbulence, now due to fears about Deutsche Bank; this caused its shares to post the biggest drop in more than three years and the cost of debt insurance contracts to rise.
The German giant, which has been recovering its value after a severe crisis, had the biggest loss among European bank shares, this after announcing a debt buyback plan, which in a normal scenario could be considered a sign of strength. Analysts failed to explain the liquidation, prompting German Chancellor Olaf Scholz to publicly back the bank.
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“We view this as an irrational market,” Citigroup analysts including Andrew Coombs wrote. “The risk is if various media headlines have a psychological impact on depositors, regardless of whether or not the initial reasoning behind it was correct.”
The German bank posted a drop of up to percent, its biggest decline since March 2020. Other players including Commerzbank, Banco de Sabadell and Société Générale also posted sharp declines.
Bloomberg reported that the recent turmoil in European banks follows a selloff of US banks, which fell on Thursday even after Treasury Secretary Janet Yellen said regulators would be prepared to take additional steps to protect deposits if was necessary.
“The banks also slumped when Bloomberg reported that Credit Suisse and UBS were among the lenders under scrutiny in a US Justice Department investigation into whether financial professionals helped Russian oligarchs evade sanctions.”, revealed the agency specialized in business.
The widespread declines cloud hopes among policymakers that last weekend’s government-brokered Credit Suisse bailout will stabilize the sector more broadly. Regulators and executives sought throughout the week to reassure traders about the health of the banking sector.
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Deutsche Bank recently emerged from a four-year restructuring plan that included thousands of job cuts and a departure from much of the investment bank. Chief executive Christian Sewing, who took over in 2018, even explored a deal with German rival Commerzbank in 2019 at the behest of the government, before deciding against it.
Good Morning Everyone! Another day, another bank in trouble. Deutsche Bank is down 14% today. Their credit default swaps are emerging. This means the cost to insure bond holders against a default is rising rapidly. Not good.
Deutsche Bank is the largest bank in Germany and a top… pic.twitter.com/J1YLcNnqoo
— Genevieve Roch-Decter, CFA (@GRDecter)
March 24, 2023
Faced with these fears, German Chancellor Olaf Scholz assured that “there is no reason to be concerned” about the situation of Deutsche Bank.
“It is a very profitable bank. There is no reason to be concerned”, said Scholz, at the end of the summit that the European leaders concluded in Brussels, where they analyzed the situation in the financial markets. With information from Bloomberg and EFE