A massive sell-off in European bank shares has led to the co-chief executive of Deutsche Bank, John Cryan, issuing a statement to reassure clients, investors and staff that Deutsche Bank is “rock solid” with a “strong capital and risk position”. The bank’s shares plunged to a record low price with the market capitalisation of one of Germany’s biggest banks now only around €20 billion. German finance minister, Wolfgang Schauble, also responded to questions saying that he had “no concerns about Deutsche Bank”. 5 year credit default swap prices on Deutsche Bank, the insurance contracts protecting bond holders against default, shot higher to levels not seen since 2012.
European banks’ shares have been heavily sold off as investors become more and more concerned that the easy money policies of global central banks are impacting bank profitability. Adding to woes are the loans made to companies that will be affected by the rout in commodity and energy prices.
A credit derivatives analyst from Bank of America Merrill Lynch, Ioannis Angelakis, was quoted as saying “The CDS market is pointing to a shift in market risks: from predominantly idiosyncratic to more systemic risks. We see a widespread weakness in names across the credit spectrum.”
Charles Himmelberg, chief credit strategist at Goldman Sachs, said in a note to clients that markets have started “aggressively de-risking, apparently owing to fears that the recent slowdown in global growth could descend into recession. Financial credit spreads are spiking, especially in Europe, possibly signalling a reactivation of systemic risk concerns.”