Deutsche Bank is not the next Credit Suisse, analysts say as panic spreads

Deutsche Bank shares slid Friday portion the outgo of insuring against its default spiked, arsenic the German lender was engulfed by marketplace panic astir the stableness of the European banking sector.

However, galore analysts were near scratching their heads arsenic to wherefore the bank, which has posted 10 consecutive quarters of nett and boasts beardown superior and solvency positions, had go the adjacent people of a marketplace seemingly successful "seek and destroy" mode.

The emergency rescue of Credit Suisse by UBS, successful the aftermath of the illness of U.S.-based Silicon Valley Bank, has triggered contagion interest among investors, which was deepened by further monetary argumentation tightening from the U.S. Federal Reserve on Wednesday.

Central banks and regulators had hoped that the Credit Suisse rescue deal, brokered by Swiss authorities, would assistance calm capitalist jitters astir the stableness of Europe's banks.

But the autumn of the 167-year-old Swiss institution, and the upending of creditor hierarchy rules to wipe retired 16 cardinal Swiss francs ($17.4 billion) of Credit Suisse's further tier-one (AT1) bonds, near the marketplace unconvinced that the woody would beryllium capable to incorporate the stresses successful the sector.

Deutsche Bank underwent a multibillion euro restructure successful caller years aimed astatine reducing costs and improving profitability. The lender recorded yearly nett income of 5 cardinal euros ($5.4 billion) successful 2022, up 159% from the erstwhile year.

Its CET1 ratio — a measurement of slope solvency — came successful astatine 13.4% astatine the extremity of 2022, portion its liquidity sum ratio was 142% and its nett unchangeable backing ratio stood astatine 119%. These figures would not bespeak that determination is immoderate origin for interest astir the bank's solvency oregon liquidity position.

German Chancellor Olaf Scholz told a quality league successful Brussels Friday that Deutsche Bank had "thoroughly reorganized and modernized its concern exemplary and is simply a precise profitable bank," adding that determination is nary ground to speculate astir its future.

'Just not precise scary'

Some of the concerns astir Deutsche Bank person centered connected its U.S. commercialized existent property exposures and important derivatives book.

However, probe steadfast Autonomous, a subsidiary of AllianceBernstein, connected Friday dismissed these concerns arsenic some "well known" and "just not precise scary," pointing to the bank's "robust superior and liquidity positions."

"Our Underperform standing connected the banal is simply driven by our presumption that determination are much charismatic equity stories elsewhere successful the assemblage (i.e. comparative value)," Autonomous strategists Stuart Graham and Leona Li said successful a probe note.

"We person nary concerns astir Deutsche's viability oregon plus marks. To beryllium crystal wide - Deutsche is NOT the adjacent Credit Suisse."

Unlike the stricken Swiss lender, they highlighted that Deutsche is "solidly profitable," and Autonomous forecasts a instrumentality connected tangible publication worth of 7.1% for 2023, rising to 8.5% by 2025.

'Fresh and aggravated focus' connected liquidity

Credit Suisse's illness boiled down to a operation of 3 causes, according to JPMorgan. These were a "string of governance failures that had eroded assurance successful management's abilities," a challenging marketplace backdrop that hampered the bank's restructuring plan, and the market's "fresh and aggravated absorption connected liquidity risk" successful the aftermath of the SVB collapse.

While the second proved to beryllium the last trigger, the Wall Street slope argued that the value of the situation successful which Credit Suisse was trying to overhaul its concern exemplary could not beryllium understated, arsenic illustrated by a examination with Deutsche.

"The German slope had its ain stock of header unit and governance fumbles, and successful our presumption had a acold little prime franchise to statesman with, which portion importantly little levered today, inactive commands a comparatively elevated outgo basal and has relied connected its FICC (fixed income, currencies and commodities) trading franchise for integrated superior procreation and recognition re-rating," JPMorgan strategists said successful a enactment Friday.

"By comparison, though Credit Suisse intelligibly has shared the struggles of moving a outgo and superior intensive IB [investment bank], for the longest clip it inactive had up its sleeve some a high-quality Asset and Wealth Management franchise, and a profitable Swiss Bank; each of which was good capitalised from some a RWA [risk-weighted asset] and Leverage vulnerability standpoint."

They added that immoderate the prime of the franchise, the events of caller months had proven that specified institutions "rely wholly connected trust."

"Where Deutsche's governance fumbles could not incrementally 'cost' the slope thing successful franchise loss, Credit Suisse's were instantly punished with capitalist outflows successful the Wealth Management division, causing what should person been seen arsenic the bank's 'crown jewel' to themselves deepen the bank's P&L losses," they noted.

At the clip of SVB's collapse, Credit Suisse was already successful the spotlight implicit its liquidity presumption and had suffered monolithic outflows successful the 4th fourth of 2022 that had yet to reverse.

JPMorgan was incapable to find whether the unprecedented depositor outflows suffered by the Swiss slope had been amassed by themselves successful airy of SVB's failure, oregon had been driven by a fearfulness of those outflows and "lack of condemnation successful management's assurances."

"Indeed, if determination is thing depositors mightiness larn from the past fewer weeks, some successful the U.S. and Europe, it is conscionable however acold regulators volition ever spell to guarantee depositors are protected," the enactment said.

"Be that arsenic it may, the acquisition for investors (and so issuers) present is wide – ultimately, assurance is key, whether derived from the marketplace backdrop arsenic a full (again recalling Deutsche Bank's much palmy re-rating), oregon from management's quality to supply much transparency to different opaque liquidity measures."

—CNBC's Michael Bloom contributed to this report.