Shares in Germany's largest lender, Deutsche Bank, started to tumble on Friday as worries over the financial sector continued to spread following a string of global bank failures this month. Meanwhile, the cost of insuring the bank against a possible failure has risen to a four-year high.
Deutsche Bank (DBK) shares fell to 8.25 euros from 9.06 euros on Friday - down 11% on the day and 26% lower than a month ago. The bank's slide was accompanied by losses in neighboring European banks, including Commerzbank (-5.6%) and Société Générale (-6.48%).
The decline started to accelerate after Deutsche Bank's five-year credit default swap price surged above 220 basis points (bps) on Friday. That was up from 142 basis points two days earlier and the highest since late 2018, according to S&P Global Market Intelligence.
While the company's financial results showed 10 straight quarters of profitability, the surge in CDS costs signaled investor concerns about the bank's stability. The bank's profit after tax in 2022 will be 5.7 billion euros. Concerns over the collapse of Silicon Valley Bank (SVB) earlier this month prompted the Fed to bail out the bank's depositors shortly thereafter as part of a "systemic risk exception." The panic quickly crossed the Atlantic, taking Credit Suisse, which UBS bought earlier this week in a $3.25 billion merger rescue deal.
Before the Credit Suisse bailout, the company's CDS swaps surged to 1,194 basis points well above where Deutsche Bank is now, according to S&P data. On Friday, CNBC market analyst Jim Cramer said Deutsche Bank is "doing well." Deutsche Bank is one of the ten largest banks in Europe, holding $1.4 trillion in assets by the end of 2022.
By comparison, SVB holds just over $200 billion in assets, and the Fed considers the bank to be systemically important enough to bail out its depositors. However, European regulators have slammed the Fed's bailout, arguing that it risks damaging the credibility of the global banking industry.
On Thursday, Treasury Secretary Janet Yellen said her department was willing to take "additional action" if necessary to ensure the safety of deposits in U.S. banks.
