Deutsche Bank is a German multinational investment bank and financial services company headquartered in Frankfurt, Germany. It is one of the largest banks in the world, with operations in more than 70 countries and a global workforce of around 84,000 employees.
Founded in 1870, Deutsche Bank offers a wide range of financial products and services to corporate, institutional, and individual clients. These include investment banking, corporate banking, asset and wealth management, transaction banking, and retail banking.
In recent years, Deutsche Bank has faced significant challenges, including legal and regulatory issues, declining profitability, and a major restructuring program aimed at cutting costs and refocusing the bank on its core businesses.
The bank also pledged to exit some non-core businesses and reduced its workforce by about 18,000 employees by the end of 2022.
Shares of Deutsche Bank fell more than 14% in European trading after the bank’s credit default swaps that insure against default skyrocketed to a four-year high. On Thursday, Deutsche Bank credit default swaps saw their largest one-day rise ever.
The German lender’s (CDSs) spiked to over 200 basis points (bps), up from 142bps on Thursday, taking its losses to 30.2% over the past two weeks.
We can clearly see that equities are back under pressure, the Euro Stoxx 600 Banks index fell 5.3% with Germany’s banks leading the decline. Commerzbank was down 10.3%, while French banks Société Générale and BNP Paribas lost 8.3% and 6.5%, respectively.
Today’s decline in Deutsche Bank shares confirms that investors’ worries about the risk of contagion in the banking sector remain high.
The credit default swap (CDS) is a contract between two parties in which one party purchases protection from another party against losses from the default of a borrower for a defined period. It is important to note that the higher the value of the CDS, the more likely the market sees the issuer defaulting.
Moreover, according to Bloomberg, the U.S. government was investigating banks including Credit Suisse and UBS for allegedly helping Russians evade U.S. sanctions.
On the other side, the ECB raised interest rates by 50bps last week as it continues to monitor inflation levels closely in the eurozone. Overall, the economic conditions remain difficult, with higher rates and rising default risk of contagion in the banking sector, global equities are likely to face more selling pressure in the coming weeks, therefore, we might see the beginning of portfolio rotation toward safe havens like Gold.
