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Deutsche Bank Stress Seen in Rising Cost of Credit Insurance 

September 27, 2016

Kate Linsell, Bloomberg

Credit derivative traders are again expressing concern about Deutsche Bank AG’s weakening financial health. 

They’ve been pushing up the cost of short-dated contracts, with one-year swaps climbing faster than that of five-year. The so-called flattening credit curve can be an indicator of stress.

Reports that the German government wouldn’t step in to back Deutsche Bank fueled concerns about its financial health. The U.S. Justice Department is seeking a $14 billion fine even as Chief Executive Officer John Cryan tries to shore up profitability and capital by cutting thousands of jobs and shrinking operations.

“With credit swaps at these levels, it will ring alarm bells and make it even harder for counterparts to conduct business with Deutsche Bank,” said Michael Huenseler, who helps oversee about 17 billion euros ($19 billion) at Assenagon Asset Management in Munich. “There seems to be no relief from negative headlines.”

A rapid rise in default swap prices can fuel even more hedging by firms that trade with Deutsche Bank. Cryan said in February that trading had been affected by derivatives prices that were rising at the time. Charlie Olivier, a London-based spokesman at Deutsche Bank, declined to comment on the lender’s credit-default swaps on Monday. Read more

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