Shares of Deutsche Bank (DE:DBKGn) crashed by 10% yesterday following a report from CreditSights Inc. that the German Banking giant could struggle to pay bonds obligations in 2017.
The collapse in share value forced Deutsche Bank’s CFO Marcus Schenck to publish a note to employees were he stated that the firm's “capital and risk position remain strong.”
This note followed an earlier statement from the bank that rejected the CreditSightsInc. analysis and stated that the Bank has more than sufficient resources to pay coupon obligations in 2017.
However, news of Deutsche Bank’s possible troubles weighed heavily on the DAX as the markets braced themselves for a potential Lehman-type crisis.
The warning from the analysts at Creditsights Inc. was prompted by their concerns over the potential inability to pay 2017 coupons due to litigation risks and/or if next year’s financial performance fails to meet expectations.
In the space of less than half a year, two of Germany’s biggest companies have come under the spotlight as Deutsche Bank follows the automotive giant Volkswagen (DE:VOWG_p) into what seems to be a possible damaging crisis.
The timing of the Deutsche Bank news could not have come at a worse time for global equity markets.
The sudden downturn across all major stock indices has concerned investors across the globe. There is a striking difference in the change of short-term sentiment as investors were encouraged by a fairly positive United States Jobs Report.
With latest German industrial production numbers published by Destatis also missing the forecasts by a wide margin, there is a fear is that the might of the eurozone’s industrial center could be strangled by a potential meltdown in the banking sector.
There are other external risks, such as the rapid slowdown in the Chinese and emerging market economies, the refugee crisis, and the potential of a damaging British Brexit from the European Union that could be the catalyst for a further crisis in the eurozone’s periphery nations.
The glass seems very much half empty this morning.