Is Deutsche Bank the next Credit Suisse? Traders think so today as they dump the stock and rush to protect bond holdings.
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From a new report in Bloomberg:
Deutsche Bank AG became the latest focus of the banking turmoil in Europe as ongoing concern about the industry amid a slowing economy sent its shares slumping the most in three years and the cost of insuring against default rising.
The bank, which has staged a recovery in recent years after a series of crises, was the biggest loser among large European bank stocks Friday after announcing a plan to repurchase debt, a move normally seen as a sign of strength. Analysts struggled to explain the selloff, which prompted German Chancellor Olaf Scholz to publicly back the lender.
The cost of insuring against a bank’s default is a key stat. Called a Credit Default Swap (CDS), this protection often soars in price when a bank is close to failing.
One thing in Deutsche Bank’s favor: a big pile of cash. It’s sitting on $179 billion of cash and deposits at central banks, according to its latest annual report.
That means it could pay back 28% of its deposits almost immediately. But the thing is, Credit Suisse had a ton of cash too.
It failed anyway. In the end, no bank can pay back all its depositors right away.
Even US regulators seem concerned. Treasury Secretary Janet Yellen convened a group of top officials this morning in an unscheduled, closed door meeting.
In the end, Germany won’t let Deutsche Bank fail. Neither will the ECB.
Deutsche Bank is the largest bank in Germany by far. It ranks #8 in the entire EU.
Olaf Scholz is not going to let old Granny Durchdenwald lose her life savings.
But that doesn’t mean Deutsche Bank shareholders are safe. Once mighty Credit Suisse is now a penny stock.
I hate bank stocks. Banks often pick up pennies in front of a steamroller, turning in decent profits until they suddenly get crushed.
Perhaps Deutsche Bank will survive as an independent company. Either way, shareholders won’t be sleeping well tonight.
What do you think will happen to Deutsche Bank? Leave a comment and let us know!
Have a great weekend everyone!
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