Shares of Deutsche Bank tumbled as much as 13% on Friday after the German lender learned it would have to pay higher rates to insure its bondholders against default. Deutsche Bank’s stock dropped for a third consecutive day as concerns abound over the stability of the global banking system following the recent emergency rescue of Credit Suisse by rival UBS as well as the collapse of US-based lenders Silicon Valley Bank and Signature Bank of
New York. Dow futures fell to more than 270 points before the opening bell on Friday while the S&P 500 and the Nasdaq were also poised for a retreat on Wall Street. Investors on Friday reacted to the news that Deutsche Bank’s credit default swaps, which is a type of insurance offered to holders of debt against a company’s default, rose from 142 basis points on Wednesday to 173 basis points on Thursday. As of Friday morning, the bank’s CDS surged again to more than 200 basis points, according to data from S&P Market Intelligence. So far this month, Deutsche Bank’s stock has fallen by a fifth of its former value. The stock closed down 8.5% in Frankfurt trading. Deutsche Bank’s woes have cast a pall over the entire banking sector. Shares of First Republic Bank, the San Francisco-based regional lender whose shaky balance sheet prompted an infusion of $30 billion worth of capital from 11 of the nation’s largest lenders, were down some 6% in pre-market trading. PacWest, another regional lender that has seen its stock price dip, was down more than 8% before Friday’s opening bell. “Deutsche Bank has been in the spotlight for a while now, in a similar way to how Credit Suisse had been,” Stuart Cole, head macro economist at Equiti Capital, told Reuters. “It has gone through various restructurings and changes of leadership in attempts to get it back on a solid footing but so far none of these efforts appear to have really worked.” Bondholders of Deutsche Bank debt were also running for cover on Friday. The lender’s 7.5% Additional Tier-1 dollar bonds fell nearly 3 cents to 72.868 cents on the dollar, pushing the yield up to 24%. That yield is more than double what it was just two weeks ago, based on Tradeweb data. AT1 bonds are the same debt instruments that were held by investors who saw a total of $17 billion written down as part of UBS’s $3.2 billion rescue of Credit Suisse. Investors were rattled earlier this week when Treasury Secretary Janet Yellen declined to guarantee “blanket insurance” to all depositors — an apparent backtrack from earlier statements. Yellen’s comments coincided with attempts by Fed Chair Jerome Powell to reassure Americans that it was safe to leave their money in bank accounts. “We have the tools to protect depositors when there’s a threat of serious harm to the
economy or to the financial system,” Powell said. “Depositors should assume that their deposits are safe.” Yellen’s comments to the US
Senate appropriations subcommittee on Wednesday came on the same day Powell announced an interest rate hike of a quarter point despite warnings from economists that it could have an adverse impact on the shaky banking system.