As the European banking crisis deepens, analysts caution against making too many comparisons.
The 167-year Credit Suisse fallout (CSGKF) what usb (UBS) – Get a free reportpromised to acquire on March 19, has thrown the European banking world into crisis.
Shares of Stoxx Europe 600, which is made up of the 600 largest banks in Europe, are down 4% from a month earlier, while German giant Deutsche Bank (database) – Get a free reportShares have been falling for three straight days. At one point on March 23, stocks plummetedalmost 15% as the cost of insuring it against a possible default skyrocketed.
DON’T MISS: Deutsche Bank shares are on the ropes – here’s what the charts are telling us
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Here’s why Deutsche Bank shares plummeted
In recent years, Deutsche Bank in particular has been through a lot of turmoil. While it delivered two years of consecutive profits and 5.7 billion euros ($6.1 billion) in 2022, Europe’s eighth-biggest bank had previously suffered a series of major restructuringsunder CEO Christian Sewing.
These include, in 2019, getting out of the share selling and trading business and focusing on German banking, as well as cutting 18,000 jobs in 2022.
But despite the strong recent string of gains, panic over the state of European banks and the rising cost of credit default swaps has been unsettling investors. On March 23, the cost of insuring five-year credit default swaps jumped from 142 to 173 basis points.
But even amid concerns that a Credit Suisse-like fate could spread to other big banks, analysts caution against making too many comparisons.
Don’t compare Credit Suisse to other banking giants, analysts say
“There is no evidence of a flight of depositors at Deutsche, the factor that really sealed the fate of Credit Suisse”, Nils Pratley wrote for The Guardian. “Neither, to the best of our knowledge, is the European Central Bank as concerned about Deutsche as the Swiss authorities were when they advanced a loan line of 50 billion Swiss francs ($54.34) to Credit Suisse.”
The biggest difference between Deutsche Bank and Credit Suisse is, according to a note, that JP Morgan Chase (JPM) – Get a free reportAnalysts told clients that Deutsche Bank was able to complete its restructuring and regain confidence long before the market turned more fearful. A “fresh and intense focus on liquidity risk” sealed the deal for Credit Suisse.
“Where Deutsche’s governance blunders failed to ‘cost’ the bank anything in franchise loss, Credit Suisse was immediately punished with investor exits in the Wealth Management division, causing what should have been seen as the ‘crown jewel’ ‘ from the bank to deepen the bank”. Profit and loss losses,” the analysts write.
This is not to say that shares of Deutsche Bank and many other banks are not going to wobble for a while as the broader market uncertainty surrounding the series of lockdowns continues. But for now, the majority view is that investors may be feeding off each other’s panic, which will gradually fade.
“Traders act like tradesmen: sell first and ask questions later.” Bruce Kamich write for TheStreet’s real money. “DB shares are likely to remain under selling pressure.”
