Deutsche Bank: Down -45% From YTD High

Written by Larince Zhang

Deutsche Bank, the largest bank in Germany ($20.51B in market cap as of March 2023), seems to be the next in the spotlight, following  the recent bank turmoil. The bank’s shares suffered from massive selling for three consecutive weeks, and last closed at €8.5260, refreshing new lows since October 2022. In this month alone, as of its close last Friday, the Deutsche Bank share price has plunged nearly 40%, losing 1/5 of its market value.

Concerns over the stability in the banking sector was the main factor triggering the sell-off. Despite the policy makers taking immediate rescue action and giving reassurances that the banking system remains “sound and resilient”, this obviously did not convince the investors. The effect was widespread, with top European banks down -5.1% overnight, British banks down over -3%, and most of the US major banks ticking lower (except Bank of America which closed slightly up +0.17% – (source: Yahoo Finance).

The European Central Bank (ECB) imposed rate hikes by 50 bps in its latest decision, pushing borrowing costs to the highest level since late 2008. The latest report was that the five-year credit default swaps (CDS) (or the cost of insuring the bonds against the risk of default) of Deutsche Bank has shot to more than four-year highs, to above 220 bps. Its AT1 bonds were also sold off sharply, with bond yield doubled from two weeks ago to over 22%.

Deutsche Bank also released a statement that it will redeem its Fixed to Fixed Reset Rate Subordinated Tier 2 Notes due 2028, which are worth $1.5 billion, on 24th May, in accordance with the principal amount and as of (but not including) redemption 100% of the accrued interest on the day of redemption. All necessary regulatory approvals have been received, and formal redemption notices shall be delivered in accordance with the indenture terms of the notes. Such a move may further aggravate market concerns about weakening capital at the bank.

Nevertheless, some economists and analysts pointed out that Deutsche Bank shall not be the next Credit Suisse, supported by its reorganized and modernized business model, solid fundamentals and profitability over the years, healthy solvency or liquidity position, and CDS level still way below  that of CS (which peaked above 1000 bps).

The #DeutscheBank ($DB) share price was trending lower following a retrace from the YTD high seen in late January, at €12.36. Accumulated losses from the mentioned peak were around 45%. €8.92 (or FR 61.8% extended from the lows in April 2020 to the highs in February 2022) serves as the nearest resistance. As long as the asset remains pressured below this level, selling pressure may persist, bringing support €7.37 (FR 78.6%) in focus, followed by €6.30 and €5.39. Otherwise, if price closes above €8.92, the bulls may continue testing €10 (FR 0.0%) and 100-week SMA, both serving as a crucial resistance zone.

About the author

Larince Zhang

Larince entered the world of live market analysis and trading in 2013. Her passion ranges from foreign exchange to commodities, indices and futures as well as stocks. Having a Bachelor Degree majoring in Banking and Finance, she strives to make full use of her learned knowledge together with practical trading to achieve a more comprehensive market analysis.

Through years of trading experience, she believes “Simple is Best”, as the market is driven by human activity. It is human psychology that one should opt to improve on instead of mere technical or fundamental analysis. She believes in three core elements to a mature trading approach – scrupulous trading mindset, well-planned strategies and strict money management.