Deutsche Bank Seeks Credit Boost as New Debt Swaps Start Trading (DB Fighting To Stave Off Systemic Failure)

Reading endless stories about the China-US trade standoff are tiring. Moving on to more banking-related news …

(Bloomberg) — German banks may get some relief in credit markets as new insurance contracts start trading.

Deutsche Bank AG has the most to gain because stress in the credit-default swaps market has pressured borrowing and trading costs. Swaps covering senior-preferred debt will also align German contracts with those in France and Spain.

“This will lower the cost for counterparties hedging exposures to Deutsche Bank and more accurately reflect the position for counterparties and clients in the hierarchy of creditors,” James von Moltke, the lender’s chief financial officer said in a statement. “It also creates a level playing field for German banks versus their EU and U.S. peers.”

Swaps on Deutsche Bank’s safest securities, which are protected against losses, were quoted at about 95 basis points at 11 a.m. in London, according to CMA. That compares with about 180 basis points on senior non-preferred contracts. It’s unclear if any trades have taken place.


If we looks at Deutsche Bank’s 5Y Senior and Subordinated CDS, we see a dramatic divergence in the CDS spreads.


For comparison, here are the senior and subordinated CDS curves for US bank Bank of America. Both curves are considerably lower than DB’s curves.


Deutsche Bank’s equity has hovered around under $10 per share since December 2018.


Deutsche Bank’s CET1 (Common Equity Tier 1 (CET1) is a component of Tier 1 capital that consists mostly of common stock held by a bank or other financial institution. It is a capital measure that was introduced in 2014 as a precautionary means to protect the economy from a financial crisis. It is expected that all banks should meet the minimum required CET1 ratio of 4.50% by 2019) is solid at 15.70.


At least the non-performing assets on DB’s balance sheet are shrinking (but remain a headache).


Compare DB’s NPA to Bank of America’s NPA. BAC has managed to shrink their non-performing assets (aka, loans) to almost pre-financial crisis levels. DB is still considerably above their pre-crisis levels


Chris Whalen is correct. Deutsche Bank’s problems ARE Amercia’s problems as well. And you can see why Brexit is so important to German banks.

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