Market Nervous on Deutsche Bank, but Fundamentals of European Banks are Solid
Monday 27 March 2023
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Market Nervous on Deutsche Bank, but Fundamentals of European Banks are Solid
March 2023 | Uncertainty in markets continued at the end of last week, with additional volatility in the banking sector. Credit Suisse had viability and profitability challenges as it was struggling to turn around its investment bank franchise. On top of that, it was one of the banks with the lowest amount of insured deposits in the sector (c. 15% of total). The set-up and strength of Deutsche Bank are much better - the group is profitable, while its liquidity is very robust with a loan-to-deposit ratio of 78% at December 2022 year-end (vs Credit Suisse's 113%) and significant liquidity reserves. Moreover, we would expect the group to benefit from a more loyal, stickier diversified depositor base compared with Credit Suisse, as a greater proportion of Deutsche Bank's deposits fall under government guarantees.
01 | Uncertainty in markets continued at the end of last week, with additional volatility in the banking sector and Deutsche Bank experiencing pressure in particular.
02 | In an attempt to calm markets down, European Central Bank President Christine Lagarde reiterated the strength of the European banking sector, while German Chancellor Scholz also said that Deutsche Bank appears profitable and there is no reason to worry.
03 | Markets appear to be mostly driven by rising recession fears at present, following a strong start to the year amid excessive complacency; however, we see little change in terms of the fundamentals in comparison to previous weeks.
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