Deutsche Bank Shares Fall Dramatically After The Cost Of Insuring Against The Risk Of Default Increases

On Friday, March 24, after a surge in credit default swaps on Thursday night, Deutsche Bank shares dropped by more than 14%.

Available statistics

In the most recent trading session, Deutsche shares, which have lost a fifth of their value this month, were down 5.5% at 8.843 euros ($9.57), not far from Monday’s five-month low.

According to data from S&P Market Intelligence on Thursday, they ended the day 3.2% lower, while the bank’s credit default swaps (CDS), a type of insurance for bondholders, increased to 173 basis points (bps) from 142 bps the day before.

According to Refinitiv statistics, this is the most significant one-day increase in Deutsche’s CDS that has ever occurred.

As per Firstpost reports, certain bonds owned by Deutsche Bank were also sold off. The yield on its 7.5% Extra Tier-1 dollar bonds increased to 22.87% after a 1-cent decline to 74.716 cents on the dollar.

Tradeweb shows that the yield has doubled since just two weeks ago.

Markets somewhat reduced losses when Christine Lagarde, president of the European Central Bank, informed EU leaders that the banking system in the euro region remained resilient because of stable capital, liquidity situations, and post-2008 reforms. She said the ECB’s toolset was prepared to boost the financial system’s liquidity if required.

The European Crisis

Investors are worried about a contagion effect following UBS’s last-minute rescue of Credit Suisse after the collapse of Silicon Valley Bank in the United States. On Wednesday, the U.S. Federal Reserve tightened its monetary policy even further, adding to the market concern.

The Swiss authorities tried brokering Credit Suisse’s sale to its local rival to help calm the markets. However, investors are still determining if the agreement will be sufficient to reduce the stress in the banking industry.