Deutsche Bank, one of Europe’s biggest lenders, is taking a hit on Friday as traders price in the top risks of a widening US banking crisis.
Updated at 11:57am EST
german bank (database) – Get a free reportShares fell on Friday after contracts designed to insure against any default on its debt rose amid concerns that the region’s second-biggest lender could be swept up in the recent market maelstrom.
Deutsche Bank’s credit default swaps, which allow an investor to pay a regular premium to insure their debt holdings against default, posted the biggest gain on record on Friday as shares extended their slide for a third straight session. .
Five-year CDS prices rose 85 basis points (0.85 percentage points) to more than 2.1% in Frankfurt trading, meaning an investor would have to pay €21,500 ($23,100) each year for five years to insure 10 million euros of Deutsche Bank bonds against default, the highest since early 2019.
Default costs on its subordinated debt were pegged at 585 basis points, according to data from S&P Global Market Intelligence.
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The prices of so-called additional tier 1 bonds, or AT1 bonds, a form of debt used to protect the bank from potential losses that rank below senior bonds but above equity capital, were also moving sharply at the low. That followed last week’s decision by Swiss authorities to kill off AT1 holders in UBS Group’s takeover of Credit Suisse.
Deutsche Bank shares were down 8.5% at the close of trading in Frankfurt at €8.56 apiece, while its US-listed shares were down 3.4% at $9.32 apiece.
The Stoxx 600 Banks Index, meanwhile, was down 5.1% for the session and on track for a 20% drop for March.
In the US markets, bank shares were marked lower in pre-market trading, with JPMorgan Chase (JPM) – Get a free reportdown 2.35% and Bank of America (bac) – Get a free reportfalling 1.26%. Citigroup (C.) – Get a free reportThe stock, which has the largest internationally focused business of the major US lenders, fell 2.3%.
US banks cut borrowing from various Federal Reserve lending programs this week, but support levels remain high amid a shaky lull in the country’s banking sector crisis.
Banks borrowed $110.2 billion from the Fed’s main discount window during the seven-day period ending Wednesday, according to Fed data, down $42.7 billion from the record amount withdrawn during the period. former.
Loans from the Fed’s new Bank Term Financing Program, which allows banks to exchange high-quality assets for one-year loans, nearly quadrupled to $53.7 billion.
Action in the Federal Reserve’s latest liquidity effort, a daily offering of US dollar swap lines to foreign central banks, jumped to $60 billion after attracting virtually no interest during its first few days in force.
Treasury Secretary Janet Yellen, who had rattled investors in bank shares and the broader market on Wednesday when she told Senate lawmakers there were no plans for a “blanket” guarantee on US deposits, took a more balanced Thursday night while appearing before a House subcommittee.
“We have used important tools to act quickly to prevent contagion. And they are tools that we could use again,” Yellen said. “The aggressive measures we have taken ensure that Americans’ deposits are safe. We would certainly be prepared to take additional measures if warranted.”
But elevated debt suggests strains remain evident in the US banking system following the collapse of Silicon Valley Bank and Signature Bank earlier this month and ongoing concerns about deposit and capital flight from regional lenders. More smalls.
The SPDR S&P Regional Banking ETF (CREATE) – Get a free reportin fact, it was marked 2.6% higher at $43.11 per unit at midday, while First Republic (FRC) – Get a free reportshares gained 0.6%. westpac (PACW) – Get a free reportrose 4.6% and Western Alliance Bancorp (WALL) – Get a free reportrose 2.5%.
It has been difficult to muster broader market momentum, given the impact on credit growth and economic activity as a result of the banking crisis, and the stubbornly high rate of inflation that continues to erode future value in financial markets.
That said, traders seem to be betting that past pressures are likely to outweigh inflation concerns, with CME Group FedWatch indicating a 93.7% probability that the central bank will stop its rate-raising cycle at the next monetary policy meeting in May.
In the bond market, yields on benchmark two-year Treasuries were 25 basis points lower in early New York trading at 3.5664%, while 10-year bonds settled at 3.322%. . The US dollar index, which tracks the greenback against a basket of six global currencies, rose 0.55% to 103.096 in safe-haven trade.
