Deutsche Bank Shares Plunge, Default Insurance Soars Amid More Banking Panic

Shares in Deutsche Bank – Germany’s largest lender – began to crash on Friday as financial industry fears continue to spread following a string of global bank failures this month. 

Meanwhile, the cost of default insurance on the bank’s potential collapse has risen to four-year highs.

Is Deutsche Bank Next?

Deutsche Bank (DBK) shares fell from 9.06 EUR to 8.25 EUR on Friday – an 11% decline on the day, and 26% descent from a month prior. The bank’s slide was coupled by declines in neighboring European bank stocks, including Commerzbank (-5.6%) and Societe Generale (-6.48%).

The fall began to accelerate after the price of Deutsche Bank’s five-year Credit Default Swaps began surging on Friday above 220 basis points (bps). That’s up from 142 bps just two days prior, and its highest point since late 2018, according to S&P Global Market Intelligence. 

Soaring CDS costs indicate fear among investors about the bank’s stability, despite the firm’s financial results showing 10 consecutive quarters of profit. The bank reaped $5.7 billion EUR on after-tax profit in 2022. 

Fears follow the collapse of Silicon Valley Bank (SVB) earlier this month, prompting the Federal Reserve to bail out the bank’s depositors as part of a “systemic risk exception” shortly afterward. Panic soon crossed the Atlantic and claimed Credit Suisse, which was bought by UBS in a $3.25 billion merger rescue deal earlier this week. 

Moments before Credit Suisse’s bailout, the firm’s CDS swaps surged as high as 1,194 bps, according to S&P – far higher than Deutsche’s current level. 

On Friday, CNBC market analyst Jim Cramer said that Deutsche Bank is “doing well.”

Potential Bailouts

Deutsche Bank is one of the ten largest banks in Europe, holding $1.4 trillion in assets as of the end of 2022. 

By comparison, SVB held slightly over $200 billion in assets, and the Fed considered the bank systemically important enough to bail out its depositors. However, European regulators have already blasted the Fed for its rescue effort, believing it risks undermining the global credibility of banking. 

On Thursday, Treasury Secretary Janet Yellen said her department would be willing to take “additional action” in securing American bank deposits, if necessary.