Deutsche Bank's Slump Exacerbates European Banking Turmoil

　　Deutsche Bank Suffers Major Stock Decline

　　Deutsche Bank AG, a German banking giant, became the latest focal point of Europe's banking turmoil. Ongoing industry concerns led to a three-year low in its share prices, accompanied by a surge in default insurance costs.

　　Despite recent recovery efforts following a series of crises, Deutsche Bank's announcement on Friday to redeem a tier 2 subordinated bond early raised eyebrows. Such actions are typically intended to instill investor confidence in the balance sheet's strength. However, the negative share price reaction suggests that this message is not resonating.

　　Paul de la Baume, senior market strategist at FlowBank SA, succinctly captured the situation: "It is a clear case of the market selling first and asking questions later. There continues to be enormous concern that the banking crisis could merge into a heavier risk-off event in markets."

　　European Banking Sector Experiences Widespread Declines

　　Deutsche Bank's plunge of up to 15% marked its steepest decline since the early days of the pandemic in March 2020. It became the worst performer among European bank stocks, which collectively fell by as much as 5.7%. Notable decliners included crosstown rival Commerzbank AG, Spain's Banco de Sabadell SA, and France's Societe Generale SA.

　　These widespread declines dashed hopes that the government-brokered rescue of Credit Suisse Group AG last weekend would stabilize the broader sector. Regulators and executives spent the week reassuring traders about the banking industry's health. Central banks, including the Federal Reserve and the Bank of England, raised interest rates again this week, maintaining their focus on inflation while hoping the worst of the financial turmoil was behind them.

　　Bill Winters, Chief Executive of Standard Chartered Plc, expressed cautious optimism: "It seems that the acute phase of the crisis is done," he said, acknowledging that some issues still needed to be addressed.

　　Turmoil Spreads to U.S. Banks

　　Europe's banking turmoil followed a selloff in U.S. lenders. Banks tumbled on Thursday despite Treasury Secretary Janet Yellen's assurance to lawmakers that regulators were prepared to take further steps to protect deposits if necessary.

　　Adding to the negative sentiment, Bloomberg reported that Credit Suisse and UBS Group AG were among the lenders under scrutiny in a U.S. Justice Department probe into whether financial professionals aided Russian oligarchs in evading sanctions.

　　Deutsche Bank's Early Redemption Notice Fails to Inspire Confidence

　　Amid heightened market anxiety, displays of strength fell flat as investors searched for signs of weakness. Deutsche Bank's early redemption notice on Friday came on the first day it had the right to announce it. However, instead of shoring up confidence in the lender, the cost of insuring its bonds against default jumped.

　　The cost of insuring Deutsche Bank's five-year senior bonds was quoted at around 220 basis points on Friday morning. While elevated for a major European bank, it still fell short of Credit Suisse's highs last week. The Swiss bank's 1-year CDS exceeded 3000 basis points at the height of the turmoil.

　　UBS Faces Challenges After Credit Suisse Takeover

　　Earlier this week, UBS offered to buy back bonds issued days before it agreed to acquire troubled rival Credit Suisse. This deal sent a gauge of its credit risk soaring. While shareholders welcomed UBS's acquisition of its rival at a very cheap price, its bond prices had dropped in recent days, and credit ratings companies downgraded their outlook on the bank's debt.

　　Deutsche Bank's Recent Turnaround Efforts

　　Deutsche Bank shares fell 14% at 12:54 p.m. in Frankfurt trading, erasing gains over the past six months. Investors expressed concerns about the bank's exposure to U.S. commercial real estate and its large derivatives book, according to Stuart Graham, an analyst at Autonomous Research. However, he added in a note that both factors were "well known" and "just not very scary."

　　The lender recently completed a four-year turnaround plan, involving thousands of job cuts and exiting significant portions of the investment bank. CEO Christian Sewing, who took over in 2018, even explored a takeover of German rival Commerzbank in 2019 at the urging of the German government, before ultimately deciding against such a deal.

　　Despite the recent challenges, Graham remains confident in Deutsche Bank's viability: "We have no concerns about Deutsche's viability or asset marks," he wrote. "To be crystal clear – Deutsche is NOT the next Credit Suisse."