Frankfurt, Germany:
Shares in Deutsche Bank fell heavily on Friday on rising costs of lender default coverage, reigniting fears of a deepening crisis in the banking sector.
Germany’s largest lender fell more than 14 percent on the Frankfurt stock exchange in early trading before snagging back to close 8.5 percent lower at EUR 8.54.
The cost of insuring the bank’s debt against the risk of default – the so-called credit default swaps – has skyrocketed as investors become concerned about the health of the banking sector.
Long-troubled Deutsche Bank has become the center of investor concerns after the collapse of three regional U.S. lenders and rival UBS’ forced takeover of Credit Suisse sparked market turmoil earlier this month.
Commerzbank, Deutsche’s biggest competitor, also fared poorly, falling 8.5 percent in early trading before gaining ground to drop 5.45 percent at 8.88 euros.
The German banks led to declines among lenders across Europe, with Societe Generale and BNP Paribas in Paris, and several London banks among them.
However, German Chancellor Olaf Scholz offered reassurance about Deutsche Bank, saying the lender was “modernized and organized the way it works. It is a very profitable bank. There is no cause for concern”.
Speaking in Brussels after a summit of EU leaders, he also said the European banking system was “stable”, with strict rules and regulations.
Deutsche Bank also said on Friday it would redeem $1.5 billion of tier 2 bonds early — such a move is normally designed to boost confidence in a bank, though shares plummeted anyway.
The bank was hit by a series of problems related to its pre-crisis 2008 attempts to compete with Wall Street’s investment banking giants.
But it launched a major restructuring, cutting thousands of jobs and a greater focus on Europe, and is financially sound again. Last year it posted its highest annual profit since 2007.
Tumbling bank stocks dragged markets across Europe down on Friday.
Contagion fears resurfaced after central banks continued monetary tightening while focusing on fighting inflation, even though the problems in the banking sector were linked to their rate hikes.
Although the problems in the banking sector are related to their rate hikes. |
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