The European banking system is facing a period of stress as Deutsche Bank’s shares fell for the third day in a row following a spike in credit default swaps, according to CNBC. The cost of insuring against Deutsche Bank’s default spiked, leading to an 11% fall in its shares on Friday. The German lender’s troubles have added to concerns about the stability of the European banking system as a whole.
In response to the growing fears of banking contagion, Swiss regulators worked to seal a deal to prevent Credit Suisse from collapsing. UBS, Credit Suisse, and Swiss bank regulators worked together to reach an agreement, which resulted in UBS agreeing to buy Credit Suisse for $3.2 billion, according to the Financial Times.
During a press conference on Sunday, UBS’s Kelleher said that the deal is not subject to shareholder approval. The move by UBS to acquire Credit Suisse is seen as a way to prevent further instability in the European banking system.
The situation with Deutsche Bank and Credit Suisse highlights the fragility of the European banking system, which has been under pressure in recent years due to a combination of factors, including low interest rates and the economic fallout from the COVID-19 pandemic. The European Central Bank has been taking steps to support the banking sector, but it remains to be seen whether these efforts will be enough to prevent further instability.
As the situation unfolds, investors will be watching closely to see how other banks in Europe are affected by the ongoing stress in the system. The European Union has been working to strengthen its banking system, but there is still a long way to go before it can be considered completely stable. In the meantime, regulators and market participants will need to remain vigilant and take decisive action to prevent further destabilization.
CNBC reported:
Deutsche Bank shares fell by more than 11% on Friday following a spike in credit default swaps Thursday night, as concerns about the stability of European banks persisted.
The German lender’s Frankfurt-listed shares retreated for a third consecutive day and have now lost more than a fifth of their value so far this month. Credit default swaps — a form of insurance for a company’s bondholders against its default — leapt to 173 basis points Thursday night from 142 basis points the previous day.
Deutsche Bank’s additional tier-one (AT1) bonds — an asset class that hit the headlines this week after the controversial write-down of Credit Suisse’s AT1s as part of its rescue deal — also sold off sharply.
Deutsche led broad declines for major European banking stocks on Friday, with German rival Commerzbank shedding 9%, while Credit Suisse, Societe Generale and UBS each fell by more than 7%. Barclays and BNP Paribas both dropped by more than 6%.
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