Deutsche Bank is falling: is there the next weak link in the European banking system?

By RockedBuzz 23 Min Read

With this, the exchange rate of the largest German bank is close to its five-month low, at 8.52 euros. The price of the bank’s bankruptcy insurance, or CDS spread, increased yesterday from 134 basis points the previous day to 191 basis points, and is currently at 207 basis points. THE Reuters according to Deutsche Bank’s CDS spread, such a rise has not yet occurred.

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Compared to Deutsche Bank, the CDS spread of other European banks has increased to a lesser extent, but also the market’s perceived bankruptcy risk:

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Meanwhile, some Deutsche Bank bonds are also under selling pressure. Supplemental Tier-1 dollar bonds (AT1), which yield 7.5%, fell 1 cent to $74.716, and their yield rose to 22.87%, double the level of two weeks ago.

Bank-issued AT1 bonds have been under pressure since Credit Suisse was forced to write down $17 billion of AT1 bonds over the weekend as part of a forced buyout by UBS, while widespread concerns about the bonds have been dampened by the fact that, unlike eurozone regulations, Credit Suisse its bond prospectuses specifically contained the clause that AT1 bondholders do not precede the shareholder in the order of satisfaction, i.e. it was possible at the Swiss bank that the bondholders would lose all their money, but the shareholders would not – points out in his previous article Reuters. On the other hand, the Eurozone authorities have indicated that, based on EU regulations, AT1 bondholders will never overtake shareholders.

By the way, Deutsche Bank announced on Monday that its exposure to the market of Credit Suisse’s AT1 bonds is “close to zero”, so the current wave of sales was not induced by the losses related to Credit Suisse that the German bank may have suffered in the past few days.

Development of Deutsche Bank’s exchange rate

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Cover image: Shutterstock

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