Deutsche Bank AG (DB:NYE) experiences weakness on contagion fears

Deutsche Bank Appoints Samuel Kim as South Korean Head

Deutsche Bank Drops on Fears

Deutsche Bank, one of Europe’s largest financial institutions, has experienced a sharp drop in its stock price and an increase in the cost of insuring its debt against default. The selloff was described by Citigroup analysts as irrational, and even German Chancellor Olaf Scholz publicly backed the lender, reiterating that Deutsche Bank is not the next “Credit Suisse”. Despite the bank’s recent recovery from a series of crises, the market seems to be spooked by various media headlines and concerns about contagion.

The bank’s plan to repurchase debt, normally seen as a sign of strength, has also been perceived negatively by investors. Instead of shoring up confidence, Deutsche Bank’s credit default swaps jumped. The cost of insuring the bank’s senior bonds for five years was quoted at around 200 basis points on Friday afternoon, after reaching 220 basis points earlier in the day. While these levels are elevated for a major European bank, they are still a long way off the highs of Credit Suisse last week.

Deutsche Bank’s exposure to US commercial real estate and its large derivatives book have caused some concern among investors, but these risks are well known and do not warrant panic.  Deutsche Bank has also fundamentally modernized and reorganized its business model and is a very profitable bank, according to Chancellor Scholz.

The recent turmoil in Europe’s banking sector, following a selloff in US lenders, has undermined hopes among authorities that the government-brokered rescue of Credit Suisse Group last weekend would stabilize the broader sector. However, senior European officials have emphasized the strength of the region’s banking sector, and Central banks from the Federal Reserve to the Bank of England have raised interest rates this week, keeping their focus on inflation amid hopes that the worst of the financial turmoil is past.

While the selloff of Deutsche Bank’s stock and the increase in the cost of insuring its debt against default are cause for concern, it is important to note that the bank has recently emerged from a four-year turnaround plan and is fundamentally modernized and reorganized. The concerns about contagion and the psychological impact of media headlines are irrational, and authorities are reassuring investors about the health of the banking industry, but time will tell.

Analyst Ratings Coverage

STA Research (Rank#128) today assigned Deutsche Bank’s stock with a “Underperform” rating on valuation concerns, and recent industry weakness.

DB Ratings by Stock Target Advisor

DB Stock Forecast & Analysis

The average analyst target price for Deutsche Bank AG is USD 12.75 over the next 12 months, with an average analyst rating of Hold. Stock Target Advisor’s analysis is Very Bearish based on 0 positive signals and 4 negative signals. Deutsche Bank AG current stock price is USD 9.65, and it has experienced negative changes of -6.49% over the past week, -20.64% over the past month, and -23.90% over the last year.

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