Shares in Deutsche Bank drop as global banking worries persist

Tumbling stocks dragged down other major banks across Europe, fuelling fears about a banking sector crisis.

Shares in Deutsche Bank have fallen sharply, dragging down other major European banks and reigniting fears about a widening banking sector crisis.

Germany’s biggest lender dropped more than 14 percent on the Frankfurt Stock Exchange in Friday morning trading before clawing back ground in the afternoon to trade 9.5 percent lower, at 8.43 euros ($9.07) a share.

Tumbling bank stocks dragged down markets across Europe on Friday with Germany’s Commerzbank down 7.5 percent, France’s Societe Generale off 5.9 percent and Austria’s Raiffaisen down 5.9 percent.

Deutsche Bank is one of 30 banks considered globally significant financial institutions, so international rules require it to hold higher levels of capital reserves because its failure could cause widespread losses.

The long-troubled bank has become the focus of investor concerns after the collapse of three regional US lenders and the Swiss government-brokered takeover of Credit Suisse by rival UBS triggered market turmoil this month.

The cost of insuring the bank’s debt against a risk of defaulting, known as credit default swaps, has surged as investors fret about the banking sector’s health.

Rising costs on insuring debt were a prelude to Credit Suisse‘s rescue by UBS. That hastily arranged takeover on Sunday and jitters about Credit Suisse’s long-running troubles led its shares to tank and customers to pull out their money.

Asked whether Deutsche Bank could be the next Credit Suisse, German Chancellor Olaf Scholz said, “There is no reason to be concerned.”

Scholz expressed confidence in Deutsche Bank, saying it had “modernised and organised the way it works. It’s a very profitable bank.”

Speaking in Brussels after a summit of EU leaders, he also said the European banking system was “stable” with strict rules and regulations.

Deutsche Bank said on Friday that it would redeem $1.5bn in tier 2 bonds early. Such a move is normally aimed at boosting confidence in a bank although its shares plunged regardless.

The bank was hit by a string of problems linked to its attempts before the 2008 global financial crisis to compete with Wall Street investment banking giants.

But it launched a major restructuring, which involved thousands of job cuts and a greater focus on Europe, and has returned to financial health. Last year, it booked its highest annual profit since 2007.

European officials said banks in the European Union’s regulatory system, which does not include Credit Suisse, are resilient and have no direct exposure to the failed California-based Silicon Valley Bank and little to Credit Suisse.

Efforts to strengthen banking regulation in recent years “puts us all in a position to say that European banking supervision and the financial system are robust and stable and that we have resilient capitalisation of European banks”, Scholz said.

European leaders, who played down any risk of a possible banking crisis at their summit on Friday, said the financial system is in good shape because they require broad adherence to tougher requirements to keep ready cash on hand to cover deposits.

International negotiators agreed to those rules after the 2008 financial crisis, triggered by the failure of US investment bank Lehman Brothers. US regulators exempted midsized banks, including Silicon Valley Bank, from those safeguards.