Investors sparked a furious selloff in Deutsche Bank AG and thrust one of Europe’s most important lenders into the center of concerns about the health of the global financial system. Shares of Germany’s largest lender tumbled as much as 15%, their third consecutive day of losses, though they later regained some ground and were recently down 10%. The cost to insure against its default using credit-default swaps soared to their highest levels since 2020.
The concern over Deutsche Bank emerged days after Credit Suisse Group AG was forced into a takeover by its larger and more stable rival UBS Group AG. Since the collapse of Silicon Valley Bank in the U.S. earlier this month, investors have scoured the globe for institutions perceived as vulnerable.
“People want to avoid anything that could come under focus,” said Jon Jonsson, credit portfolio manager at Neuberger Berman.
Deutsche Bank sits at the heart of the German economy. Despite years of retrenchment to make the bank smaller and safer, it remains a globally vital bank, with a major footprint on Wall Street trading bonds, derivatives and currencies. It serves multinational companies with bread and butter basics of lending, managing money and corporate accounts.
“Deutsche Bank has thoroughly modernized and reorganized its business model and it is a very profitable bank,” German Chancellor Olaf Scholz told reporters at an EU summit in Brussels on Friday. “There is no reason whatsoever to be concerned.”
Some analysts and investors appeared perplexed that Deutsche Bank was taking the brunt of the market’s ire. Though it has long been considered one of Europe’s most problematic banks, an overhaul launched in 2019 stabilized its operations. Unlike Credit Suisse, Deutsche Bank’s deposit base has remained steady in recent quarters. Last year was the Frankfurt-based bank’s most profitable since 2007.
“The market is on edge. It seems to just be looking for targets,” said Tatjana Greil Castro, portfolio manager at Muzinich & Co.
Shares in other European banks also fell Friday, but by less than Deutsche Bank. Shares of crosstown rival Commerzbank AG dropped 6.5%. Barclays PLC was down 5.8%, as was France’s most valuable bank, BNP Paribas SA.
One factor hammering Deutsche Bank: Mentions of the German bank have exploded on social media in recent days, a bout of activity reminiscent of the social-media frenzy that surrounded Credit Suisse last fall and which that bank’s executives said was partly to blame for its eventual demise.
Markets have reeled since the sudden collapse of Silicon Valley Bank, reminding investors how quickly confidence can erode in banks. SVB was an institution few had on their radar screens. It failed in a matter of days despite an investment-grade credit rating and a seemingly devoted base of customers and investors.
Signature Bank followed within days, and then a week later Credit Suisse was pushed into a deal after more than a century and a half of independence.