Deutsche Bank, Germany's largest Bank, sent shockwaves through the banking system on Friday, bringing fresh fears following the Credit Suisse saga. Last week we reported on the Credit Suisse situation as it unfolded as it took an emergency loan from the Switzerland National Bank. The crisis began in the U.S. with the collapse of the Silicon Valley Bank (SVB), but the contagion risk has now made its way to Europe and is spreading like wildfire. After the Credit Suisse saga appeared to have come to a resolution, the situation in Europe had subsided until the news regarding Deutsche Bank unfolded. It was reported to be a rise in the cost of insuring against the bank's default, which rose to a four-year high, that dealt a blow to the stock price, but the situation appears to be worsening. In February, Deutsche Bank published it had generated a profit of €5.6Bn before tax in 2022. Despite this, its finances are allegedly in a mess and could be another domino in the downfall of the traditional banking system. The issue stems from how banks store their customer deposits. Typically, these deposits are invested into long-term bonds, tying the money away for a long-term guaranteed interest rate. Usually, this is fine but leaves the bank vulnerable to a run. It was reported for the 2022 fiscal year-end, Deutsche Bank had ~$1.35 trillion in liabilities. That staggering number sets the scale for this possible disaster unfolding. When the system is shaken, as what has been happening over the past few weeks, customers rush to withdraw their funds, something banks can’t process if the deposits are illiquid. Therefore, the Bank then needs to make a plea for liquidity.
Deutsche Bank Chart
The Deutsche Bank ($DB) Chart. Source: Tradingview
The bank's stock price fell to a daily low of ~$8.85, around 8.31% from where it closed trading on Thursday. At the time of writing, the stock has seen some relief, bouncing back to around the $9 mark. At first glance, it may not appear so bad, 5-8% down, but this isn't an altcoin; it is one of Europe's largest banks but is currently trading as if it were an altcoin. Millions of people have their funds on the line in just this one bank, in addition to the effect on other European banks any negative sentiment could have. From the end of January, $DB is down over 30%, which demonstrates this isn't a one-day occurrence; it has been building up for a while.
Ominous Signs
Curiously, Friday seems to be a day on which large banks have issues. Going back to the Global Financial Crisis of 2008, Washington Mutual filed for Chapter 11 bankruptcy on Friday, 26th September 2008. Friday, 12th September, was the last trading day for Lehman Brothers before their bankruptcy was declared. Friday has been critical in this current banking crisis too. Regulators seized Silicon Valley Bank on Friday, March 10th. That day was also the last working day for Signature Bank before its seizure two days later. The bid by UBS for Credit Suisse also came in last week, on Friday, 17th March. What might be in store this Friday?
