Deutsche Bank also in trouble?
A rise in Deutsche Bank’s credit default swaps, a type of insurance against a failure to pay some investors, is now the market focus.
IGTV’s Jeremy Naylor explains that shares in the German lender have lost 11% today and are down heavily this week on concerns that we are now on the next leg of this classic contagion path, slowly picking off the sector’s vulnerable members.
(Video Transcript)
Deutsche Bank down
The big German lender, Deutsche Bank, is down heavily in the markets today following a spike in credit default swaps starting late last night as concerns about the stability of European banks continues to worry the markets.
Share price chart
Take a look at the share price move that we've seen for Deutsche Bank. And you can see quite clearly here on this chart, which indicates daily candles, the big sharp losses that we see on the right hand side, currently trading at 830 is down 11% on the markets, not too far away from this line of support we had established back in October last year.
But if you look at the long-term chart for Deutsche Bank, since the highs we had pre-great financial crisis, we've seen real trouble for the German lender and that trouble is persisting. We're off the lows at the moment today. This is the third consecutive day we've seen a loss of more than a fifth of the value so far this month.
Of course, credit default swaps are a form of insurance for companies' bond holders against its default. When these rise, it indicates that the markets believe that the bank concerned is going to find it increasingly hard to pay holders back the interest due. And of course the emergency rescue of Credit Suisse by UBS last weekend after the collapse of Silicon Valley Bank in the States has triggered contagion concern among investors, which was exacerbated by the Fed's decision this week to raise interest rates and the path of contagion is when one bank starts to feel the difficulties. Other banks involved in the sector and indeed the bank concerned, then start to feel the pain. And this is exactly what's happening with Deutsche Bank.
It's a continuation, this pain that's been felt among the banking sector. And many are now hoping this doesn't further damage other banks' balance sheets, which is the path of contagion that could possibly develop unless the authorities get this under control sooner rather than later.
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