Is Deutsche Bank the ‘next Credit Suisse’?

The dip up to 15% of its stock today and the surge in the cost of insurance against the possibility of bankruptcy testifies that tensions in the banking sector have not passed.

“It is a clear case where the market first sells and then asks questions. There is still a huge concern that the banking crisis could develop into a risk off episode in the marketsPaul de la Baume, strategic analyst at FlowBank, tells Bloomberg.

But why is the market targeting Deutsche Bank in particular? Germany’s biggest bank, which has been through a series of crises in recent years, is an obvious target as traders search for the next weak link among systemically important names.

THE Deutsche Bank sought to boost investor confidence in its balance sheet by announcing the early repayment of its tier 2 subordinated bonds. But the performance of its stock shows that investors did not get the message.

Its stock ended up losing around 15% (currently hovering around -11%), marking the biggest drop since the sell-off at the beginning of the pandemic and erasing the gains it had been showing since the beginning of the year.

Why do investors sell? Concerns appear to center on its exposure to US real estate and its large derivatives portfolio, according to Stuart Graham, an analyst at Autonomous Research. However, as the analyst reports, both of these factors are “absolutely known” and “not particularly scary”.

Deutsche Bank recently completed a 4-year restructuring plan that saw thousands of layoffs and cut investment banking operations. Its CEO, Christian Sewing, who took over the reins of the bank in 2018, considered a takeover of rival Commerzbank in 2019 at the urging of the German government, but decided not to go ahead with the deal.

“Deutsche Bank is NOT the next Credit Suisse,” Autonomous Research’s Graham says, according to Bloomberg. “We have no concerns about Deutsche’s solvency.”

“When bank stocks get hit, as they are today, Deutsche Bank will likely take a bigger hit than the rest,” Michael Field, an analyst at Morningstar, tells Business Insider. “Deutsche has been through a long restructuring period, selling off toxic assets throughout, but there is still some investor wariness around the quality of the bank.”

German Chancellor Olaf Scholz today assured that Deutsche Bank is a very profitable bank and there is no reason to doubt its future, thus responding to the sharp fall in the German bank’s stock. “Deutsche Bank has completely reorganized and modernized its business model and is a very profitable bank,” Soltz said in remarks after the Brussels Summit.

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