Deutsche Bank
shares tumbled Friday after the cost of insuring the lender against default rose.
Deutsche Bank
(ticker: DB) fell 13% in Frankfurt trading. U.S.-listed shares fell 10% in premarket trading. The move followed a spike in the price of the lender’s credit default swaps to a four-year high on Thursday, according to Reuters.
Other European banks were also down. The Euro Stoxx Banks Index (SX7E) slipped 6%. Germany’s
Commerzbank
(CBK.Germany) dropped 9%. France’s
BNP Paribas
(BNP.France) retreated 7%.
The declines are the latest flare-up of concerns about the health of banks worldwide. The European Central Bank said last week that the sector is resilient as it raised interest rates further, a sentiment echoed by the Federal Reserve and others this week. Last weekend, Swiss regulators stepped in to broker a takeover of
Credit Suisse,
one of the country’s biggest banks, by its larger rival UBS as confidence deteriorated.
Regional bank stocks in the U.S. also were falling Friday. That’s even after Treasury Secretary Janet Yellen said the emergency actions used to contain the fallout from Silicon Valley Bank could be used again if needed.
The
SPDR S&P Regiona
l Banking exchange-traded fund (KRE) was down 2% in premarket trading Friday. Shares of
First Republic Bank
(FRC) and
PacWest Bancorp
(PACW), which have been in focus, slipped 5.4% and 3%, respectively.
Western Alliance Bank
(WAL) was down 4%.
One problem for banks is that the recent market turmoil has raised the price of selling bonds for funding.
“The wider spreads make it more expensive for banks to fund their operations, the impact of which will come through only slowly as banks advance with their funding programs,” said ING analysts led by Carsten Brzeski in a note Friday.
“Recent events in the banking sector have resulted in substantially increased uncertainty, which is likely to continue to be reflected as substantial short-term volatility in credit markets,” they added.
The Fed reported that banks continue to take advantage of emergency lending. Borrowing from its discount window was $110.2 billion as of Wednesday, lower than the record $152.9 billion a week ago but still higher than usual. Banks also increased borrowing from the new Bank Term Funding Program to more than $50 billion.
Yellen said in testimony to Congress Thursday: “We have used important tools to act quickly to prevent contagion, and they are tools we could use again. The strong actions we have taken ensure that Americans’ deposits are safe. Certainly, we would be prepared to take additional actions if warranted.”
Yellen and Federal Reserve Chairman Jerome Powell have repeatedly asserted that consumer deposits in banks are safe, though in the week Yellen said she’s not considering extending deposit insurance. Shares of regional banks, which are smaller than the biggest ones and not subject to the same regulations on capitalization, have been on a bumpy ride since the collapse of SVB and a few other midsize lenders.
Separately,
Citizens Financial
(CFG), one of the biggest regional banks, is working on a bid for the private banking business of SVB, Reuters reported, citing unidentified people familiar with the situation. Regulators are said to want to get a deal for SVB by Monday.
Citizens Financial told Barron’s it doesn’t “comment on speculation regarding M&A.”
Write to Brian Swint at brian.swint@barrons.com
Read the full article here