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| Deutsche Bank's Possible Collapse Sparks Market Uncertainty Amidst Signs of Business Resilience |
Deutsche Bank, Germany's largest financial institution, has become the latest bank to face investor panic as its shares tumbled more than 15% in early Friday trading. The cost of insuring its debts against default also surged to a four-year high, causing the markets to price in a 31% likelihood of default probability on its unsecured bonds. Despite reassurances from the Bank of England governor and German chancellor Olaf Scholz about the relative strength of the financial system compared to the 2008 crash, financial markets are far from convinced. As fears of contagion and further government and regulatory intervention linger, investors are hunting for the next weakest link.
The fear is that, as is often the case in banking crises, fears about Deutsche Bank could quickly become a self-fulfilling prophecy. On paper, Deutsche Bank has bags of liquidity to withstand a crunch, but if investors lose confidence, it may not matter. Recent events have shown that once investors lose confidence, it is desperately difficult to regain. The bank meets all of the strict capital requirements that were imposed on the industry after the financial crash, suggesting it has sufficient capital, liquidity and is adequately funded. But the exact same could be said of Credit Suisse, which was rescued despite appearing financially sound.
Despite the uncertainty surrounding Deutsche Bank, there are some tentative signs of a recovery in the business world. Wetherspoons, the pub chain, has returned to profit, and Wickes has reported record sales. Sports Direct is hunting for targets in Europe, and even Tui, the perennial sick man of the travel industry, is trying to raise €1.8bn through a heavily-discounted share sale, indicating that confidence in travel and tourism is on the cusp of returning. The latest trading figures from the high street and positive consumer confidence data are also further cause to be quietly upbeat.
