Market Nervous on Deutsche Bank, but Fundamentals of European Banks are Solid

Monday 27 March 2023

Investment Talks


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.

Deutsche Bank | Fundamentals of European Banks

Important Information

Unless otherwise stated, all information contained in this document is from Amundi Asset Management US (Amundi US) and is as of March 27, 2023. Diversification does not guarantee a profit or protect against a loss. The views expressed regarding market and economic trends are those of the author and not necessarily Amundi US and are subject to change at any time based on market and other conditions, and there can be no assurance that countries, markets or sectors will perform as expected. These views should not be relied upon as investment advice, a security recommendation, or as an indication of trading for any Amundi product. This material does not constitute an offer or solicitation to buy or sell any security, fund units or services. Investment involves risks, including market, political, liquidity and currency risks. Past performance is not a guarantee or indicative of future results. Amundi Asset Management US is the US business of the Amundi Asset Management group of companies.

Other news

IT-Capturing the Momentum
06/03/2024 Investment Talks

Capturing the Momentum of a Narrowing Earnings Gap

Since early 2023, a handful of the market's top stocks, including the Magnificent Seven, have surged in earnings and valuation, and have dominated returns. Underneath the surface of today's concentrated, crowded market, sharp earnings recoveries may soon play out and structural changes may occur in many industries, creating new winning and losing stocks. Separating the potential winners from the rest of the market will be key to portfolio success over the next year, and beyond. With so much uncertainty and variability across industries and companies, we believe active management is essential to capturing the momentum of a changing market.  

IT-Going Global wEquities
05/15/2024 Investment Talks

Going Global with Equities - May 2024

Due to factors, including significant stimulus and hopes over artificial intelligence, a handful of the top US stocks are experiencing significantly high valuations. While US investors should continue to have exposure to domestic stocks, the outlook for international stocks appears to be improving. With global valuations unjustifiably low, a potential recession ahead, and top US stocks currently posting excessive valuations, investors may wish to consider expanding the global reach of their portfolios to  opportunities in Europe and Asia.

05/07/2024 Investment Talks

Opportunities in Catastrophe Bonds

As a structurally uncorrelated source of risk and return, we believe catastrophe bonds and insurance-linked securities (ILS) may permit investors to build more diversified and resilient portfolios.  This could be particularly true now, as the rate on line (the ratio of premium paid to loss recoverable in a reinsurance contract) for private ILS formats and the cat bond market spread remain elevated and could provide attractive total yield potential.  We believe the combination of continued elevated pricing, combined with the ongoing demand for reinsurance, may present an attractive investment opportunity throughout the remainder of 2024 and into 2025.