Home Business Deutsche Bank faces scrutiny as international banking practices worsen investor suffering.

Deutsche Bank faces scrutiny as international banking practices worsen investor suffering.

Bank stocks fell sharply in Europe on Friday, with shares in Deutsche Bank and UBS Group hurt on fears that the sector’s worst woes since the 2008 financial crisis still need to be contained.

Deutsche Bank shares fell more than 11% for the third day after a sharp increase in the cost of default insurance on Thursday.

Deutsche Bank shares fell 14% after a sudden increase in the cost of default insurance

Shares of the German bank have lost a fifth of their value so far this month and the cost of default swaps, a form of insurance for bondholders, jumped to a four-year high on Friday, according to data from Standard & Poor’s Market Intelligence.

Deutsche Bank declined to comment when contacted by Reuters.

The global banking sector has been rocked by the sudden collapse of two US regional banks this month. Politicians have pointed out that the turmoil differed from the global financial crisis 15 years ago, saying banks are better capitalized and funds are more readily available.

Fears spread fast

But fears quickly spread and UBS rushed to buy Credit Suisse on Sunday after the Swiss bank in difficulty had lost investor confidence.

According to two people familiar with the matter, Swiss authorities and UBS are racing to complete the takeover within a month in a bid to keep Credit Suisse clients and employees.

Separate sources told Reuters UBS had pledged to pay additional incentives to Credit Suisse’s wealth management staff in Asia to stem an exodus of qualified personnel.

Brokerage Jefferies Group downgraded UBS to “hold” from “buy’, saying the takeover of its former rival would change the bank’s stock, which was based on lower risk, underlying growth and higher capital returns.

“All those items, on which UBS shareholders bought shares, have been gone, probably for years,” he said.

Separately, Bloomberg News reported that Credit Suisse and UBS are among the banks under scrutiny in a US Justice Department investigation into whether financial professionals helped wealthy Russians evade sanctions.

We are still on the brink

Credit Suisse and UBS declined to comment, while the Justice Department did not respond to requests for comment via email from Reuters.

UBS shares fell 6% on Friday.

Investor pain has spread in the whole banking sector, with the index of the main European banks in 4.6% drop and shares of British banks in drop of 4%, recording a decline for the third consecutive session.

“We are still at the limit in wait for another domino to fall, and it’s clear that Deutsche Bank is next on everyone’s minds (rightly or not),” said Chris Beauchamp, chief market analyst at IG.

“It appears that the banking crisis is not entirely over,” he added.

Deposit protection

The decline in European bank stocks follows US losses on Thursday as investors were looking to see how far policymakers would support the sector. in especially fragile banks.

For the fourth time in a week, US Treasury Secretary Janet Yellen spoke on Thursday to reassure the public that the US banking system is safe.

He told US lawmakers that bank regulators and the Treasury Department are prepared to provide blanket guarantees on deposits at other banks, as they have done with Silicon Valley Bank and Signature Bank.

Stocks of major US banks such as JPMorgan Chase & Co, Wells Fargo and Bank of Americas decreased by 0.4% in the pre-trading on Fridays. And the performance mix of regional bank stocks, which are investors’ biggest concerns.

The Credit Suisse bailout also raised broader concerns about investor relations with a fragile banking sector. The decision to prioritize shareholders over Additional Tier 1 (AT1) bondholders rocked the market for these $275 billion bonds.

The purpose of these convertible bonds is to be used during bailouts to avoid taxpayers being charged for the bailouts.

Real risk

As part of the deal with UBS, the Swiss regulator insisted it cancel Credit Suisse’s Additional Tier 1 (AT1) notes with a face value of $17 billion, sending global credit markets in a state of torpor.

Bill Winters, chief executive of Standard Chartered Bank, said on Friday the cancellation had “profound” implications for global bank regulation.

He also claimed in a financial forum in Hong Kong that the Federal Reserve’s move to guarantee uninsured deposits was a “real risk”.

And US authorities have resorted to “systemic risk exceptions” that allowed them to protect uninsured deposits, including those of wealthy tech company CEOs and investors. in cryptocurrencies, after the collapse of Silicon Valley and Signature banks.


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