Deutsche Bank Leads the Drop in Bank Stock Prices

Deutsche Bank Leads the Drop in Bank Stock Prices

A bank from Germany experienced a decrease in value of 14% amidst growing worries regarding the consequences of raised interest rates.

Get the latest Equity updates without paying anything Our Equity updates are free, meaning you don't need to pay for them.

Every morning, we'll send you an email called myFT Daily Digest that summarizes the most recent Equities news.

The stock prices of banks were severely affected on Friday, especially Deutsche Bank as it fell over 14 percent. This happened as policymakers faced challenges in trying to soothe investors' concerns following setbacks in both the United States and Europe.

At midday, the Stoxx 600 index of banks, comprised of the largest financial institutions in the area, dropped by 5%, surpassing the general decline among national indices. Meanwhile, Commerzbank in Germany plummeted by 8.5% and Société Générale in France experienced a loss of 7.4%.

According to Barclays' head of European equity strategy, Emmanuel Cau, Europe is heavily skewed in favor of banks, which have been at the center of a lot of attention lately. He also noted that there are certain concerns particular to banks, such as regulations and safety of deposits, that should not be overlooked.

The European markets had a significant decline on Friday. The Euro Stoxx 600 decreased by 1.7%, while Germany's Dax, France's Cac 40, and London's FTSE decreased by 2.1%, 2%, and 1.9%, respectively.

It was predicted that the stock market on Wall Street would start at a low point. The futures that keep track of the top-performing S&P 500 decreased by 0.9%, and the ones following the tech-focused Nasdaq dropped by 0.6%. Additionally, the futures connected to the difficult regional financial institution First Republic Bank decreased by 5%.

The reason you are viewing a picture of an interactive illustration could be connected to not having internet access or having JavaScript disabled on your web browser.

The value of Deutsche Bank plummeted by 14.3% following a sharp increase in the expense of protecting its debt against potential defaults earlier this week.

Refinitiv data shows that the costs of the bank's credit default swaps for five years, which work like an insurance and offer money in case a company fails to pay back debts, increased from 134 basis points on Wednesday to 198bp on Friday.

At a summit in Brussels on Friday morning, Christine Lagarde, president of the European Central Bank, gave an update to the leaders of the region regarding her institution's actions in response to the banking crisis.

This month, central banks in the eurozone, US, and UK have all raised interest rates in order to combat high inflation. Despite recent turbulence in the banking sector which has been partly fueled by steeply rising borrowing costs over the past year, these central banks have still taken this step forward.

Mobeen Tahir, who is the director of macroeconomic research and tactical solutions at WisdomTree Europe, expressed that people in the market are still questioning whether the issues with the banking industry have been resolved or if they will spread further.

Central banks have recently indicated that they will not allow the financial chaos to severely hinder their monetary policy measures. This news is causing unease in the markets, as it could potentially worsen already existing issues or reveal new weaknesses within the banking industry.

Government officials from around the world attempted to ease the worries of investors following the collapse of multiple local banks in the US, along with the recent quick acquisition of Credit Suisse by its competitor UBS.

Last week, Lagarde stated that managing inflation and promoting financial stability do not create a dilemma. On Thursday, Janet Yellen, the US Secretary of the Treasury, declared that regulators are ready to implement further measures if necessary to guarantee the security of banking deposits. However, the attempts to curb the current selling trend have been ineffective thus far.

The strategist of Citigroup, Dirk Willer, has stated that it is currently too soon to determine if the stress placed on the banking sector will have an effect on the overall United States economy. Nevertheless, he mentioned that both the Federal Reserve and the ECB have shown increased caution in terms of tightening their monetary policies. He foresees the United States undergoing a recession this year due to the stress placed on the banking sector, which consequently will lead to a decrease in the availability of credit.

Investors are currently expecting the Fed to halt its current pattern of raising interest rates. This means rates will remain the same at the upcoming meeting in May, but will likely be decreased in September. Additionally, investors are predicting that the ECB will increase rates by 0.25 percentage points, but anticipate no reductions until 2023.

Similar news
This week's most popular news