banking crisis
It has lost more than a fifth of its value this month
Stocks fell more than 9% in early trading Friday, after a surge in credit default swaps Thursday night, as concerns persisted about the stability of European banks.
Shares of the German lender fell for the third day in a row and have lost more than a fifth of their value so far this month.
Two sources: “UBS” is racing against time to complete the “Credit Suisse” deal before late April
Credit default swaps – a form of insurance for a company’s bondholders against default – jumped to 173 basis points Thursday night from 142 basis points the day before.
Deutsche Bank’s Additional Tier 1 Notes (COCO) or AT1 – the asset class that made headlines this week after the controversial downgrade of Credit Suisse’s AT1 notes as part of the bailout deal – sold off sharply.
After completing a multibillion-euro restructuring that began in 2019, aimed at cutting costs and improving profitability, Deutsche Bank has reported 10 consecutive quarters of profit. The bank announced annual net income of 5 billion euros ($5.4 billion) in 2022, up 159% from the previous year.
The CET1 ratio – a measure of bank solvency – was 13.4% at the end of 2022, while the liquidity coverage ratio was 142% and the net stable funding ratio was 119%.
Financial regulators and governments have taken action in recent weeks to contain the risk of contagion from the problems afflicting individual lenders, and Moody’s said in a note on Wednesday that they should “broadly succeed” in doing so, according to a report published by the US “CNBC” network, which I have seen. Al-Arabiya.net.
“However, in an uncertain economic environment and with investor confidence still fragile, there is a risk that policymakers will be unable to limit the current turbulence without long-term and potentially severe repercussions inside and outside the banking sector,” according to the Moody’s team.
“Even before the pressures from banks became apparent, we expected global credit conditions to continue to weaken in 2023 as a result of very high interest rates and lower growth, including recessions in some countries.”
Moody’s suggested that as central banks continue their efforts to beat inflation, the longer financial conditions remain tight, the greater the risk that “stresses will spread outside the banking sector, causing greater financial and economic damage”.
In a related context, banking shares fell again today, Friday, after a turbulent week, in light of investors’ concern that the worst problems in the sector since the financial crisis in 2008 have not yet been contained.
The major European banks index fell 2.2% in early trading, with Swiss bank UBS down 6.4%.
After the sudden collapse this month of two US banks sparked turmoil in the sector, UBS rushed to take over Credit Suisse on Sunday after the ailing Swiss bank lost investor confidence.
According to two people familiar with the matter, the Swiss authorities and UBS are racing to complete the takeover within a month in an effort to retain Credit Suisse customers and employees.
