Germany's biggest lender, Deutsche Bank dropped over 14 per cent on the Frankfurt Stock Exchange amid growing concerns over the global financial system. The bank for the third consecutive day saw losses on Friday reigniting fears about a widening banking sector crisis.
Credit-default swaps which are used to insure against bank's default soared as investors fret about the banking sector's health. The concerns have especially gone up after the takeover of Credit Suisse by the UBS Group.
The long-troubled bank, despite its best effort to make the bank smaller and safer, holds a significant footprint on Wall Street trading derivatives, currencies and bonds. The bank provides services like lending, corporate accounts from multinational companies and money management. This means that the bank's struggles could impact the border financial system.
Deutsche Bank tries to ease concerns
The bank tried to ease the investors concerns over debt on Friday by suggesting to redeem a separate type of subordinated bond that will be due ion 2028. The bank also promised to buy the bonds at 100 per cent principal with accrued interest, indicating that the bank has the financial resources to spare. While this helped individual bondholders it could not help the general concerns regarding the bank and in a broader sense on the health of the European banking system.
The bank's struggles has pushed investors to dive into the safety of government bonds with lowering yield which has reduced the banks ability to profit.
EU leadership offer assurance
However, German Chancellor Olaf Scholz offered reassurance saying that the lender has improved and organized its working and its profitable bank so there is no reason to be concerned. EU leaders also assured that the European banking system is stable and has strict rules and regulations to follow.
This comes after the collapse of Silicon Valley Bank which was like a reminder to showcase how quickly the confidence in the banking sector can fall. In addition to this the collapse of Signature Bank and the take over of Credit Suisse by UBS has shook the global banking sector and more specifically the European banking sector.
Even other European banks like Barclays, BNP Paribas and Commerzbank AG closed in the red on Friday, though the drop was lesser in comparison to the Deutsche Bank.
The drop in the bank's stocks has raised more concerns regarding the global financial system and making investors vulnerable considering the increasing interest rates. The bank's problem in addition to the shock waves sent earlier could have far-reaching implications making the investors wary of further investments.
