Who would have thought of the Switzerland. And perhaps even more so who would tell of the Germany. Yet it is they, who have always been considered the strongholds of correctness, who undermine their own myth. After the disaster of Swiss credit, problems for the German giant arrive this morning Deutsche Bank: this morning it announced the early redemption of 1,5 billion dollars of subordinated Tier 2 securities. In reality, this action, in the bank's intentions, was to be an attempt to send a message of confidence to the markets, which instead took it very badly.
Deutsche Bank in the crosshairs and credit default swaps soar
I credit default swaps, a form of insurance for bondholders against default risk, from Deutsche bank rose more than 200 basis points – the most since early 2019 – from 142 bps just two days ago, based on data from S&P Market Intelligence, while the stock on the stock market plummeted, dragging other bankers and eventually the whole list behind it.
But that's not enough. Yesterday two other German banks, the Deutsche Pfandbriefbank and the Aareal Bank have broken a veritable taboo by announcing that they will not exercise the call option envisaged by one of their AT1 bonds, precisely those same bonds that Crédit Suisse had to devalue as part of the shotgun wedding with Ubs.
It is clear that the moment is very delicate and that, whatever element you touch, you risk doing damage.
“Deutsche Bank has been in the spotlight for some time, similar to what Crédit Suisse had been,” says Stuart Cole, chief macro economist at Equity Capital. The bank "has undergone various restructurings and leadership changes in an attempt to get it back on solid footing, but so far none of these efforts appear to have really worked."
Rain of sales on all price lists
All European banks are in a rain of sales (-2,2% the European sectoral Stoxx), but Deutsche Bank sinks the most on the Frankfurt Stock Exchange (-13,78% to 8,04 euros), losing more than a fifth of its value so far this month, trailing its rival Commerzbank (-8,3%), after it had already lost about 3% of its value on the eve. In the wake of the German groups, all European banks retreat. In Paris Société Générale loses 6,6%, BNP Paribas 6,7%. In Milan Intesa Sanpaolo leaves more than 4% on the ground, Unicredit over 5%. English Barclays falls by 6%, the Spanish bbva over 6%, Switzerland ubs almost 8%.
Deutsche bank's move causes its own bonds to fall
In detail of this morning's operation, DB says that the fixed-rate subordinated bonds maturing in 2028 will be redeemed on May 24 together with the interest accrued up to the repayment date, after having received all the necessary regulatory authorizations for the operation.
Some other Deutsche Bank bonds were also inundated with sales as a result. The Additional Tier-1 (AT1) 7,5% denominated dollars fell nearly 3 cents to 72,868 cents on the dollar with the yield jumping as much as 24%, more than double from just two weeks ago, based on Tradeweb data. While the senior fixed rate bond November 2027 in euros today it yields 4,5% gross per annum.
“The Fallout of the Cancellation of AT1 Bonds in the cs saving has raised criticism on a key part of bank financing, which makes the problems that DB has been facing that much more difficult to overcome,” says Cole.
Moreover, Crédit Suisse and UBS are among the banks that the US Justice Department is investigating to ascertain whether or not they helped Russian oligarchs evade sanctions, as reported by the Bloomberg agency on Thursday evening.
“Things are moving very quickly these days. It's certainly a bank that has long struggled with profitability,” says Jon Jonsson, credit portfolio manager at Neuberger Berman, “investors are rethinking their positions, offloading weak links.”
Moody's is counting on the support of the authorities to protect the sector
“Looking forward, the longer financial conditions remain tight, the higher the risk that stresses spread beyond the banking sector, unleashing greater-than-expected financial and economic damage,” wrote Moody's in its latest report on global credit conditions.
“Our basic expectation is that they (central banks and political governments) will largely manage the situation… which remains challenging, thereby increasing the risk that missteps, restrictions or unintended consequences could lead to further deterioration of the credit environment,” adds Moody's .
