Deutsche Bank stocks fall 14%

Shares of Deutsche Bank plunged by over 14% on Friday as credit default swaps surged on Thursday night, fueling concerns about the stability of European banks. Credit default swaps leaped to 173 basis points from 142 basis points in a day, raising fears of a contagion effect among investors.

The recent emergency rescue of Credit Suisse by UBS, following the collapse of US-based Silicon Valley Bank, has exacerbated contagion concerns among investors, which was compounded by the U.S. Federal Reserve’s latest monetary policy tightening on Wednesday.

Swiss and global regulators had hoped that Credit Suisse’s sale to UBS would help stabilize the markets, but it seems that investors are still worried about the banking sector’s stress. Deutsche Bank’s additional tier one bonds also faced a sell-off, while major European banking stocks, including Commerzbank, Credit Suisse, Societe Generale, UBS, Barclays, and BNP Paribas, experienced broad declines on Friday.

Deutsche Bank has seen ten quarters of profit after the multibillion-euro restructuring it started in 2019. The bank recorded 5 billion euros ($5.4 billion) in annual net income in 2022, up by 159% from the previous year. However, as Moody’s warns, financial regulators and governments may be unable to curb the ongoing turmoil without potentially severe repercussions both within and beyond the banking sector, as global credit conditions continue to deteriorate amid higher interest rates and lower growth.