Deutsche Bank recorded an 8 per cent decline in its share price on Friday (24 March), closing the trading day at €8.4 (AU$13.8) per share.
The bank’s stocks plunged as much as 15 per cent before recovering some of its value.
The dip coincided with Deutsche Bank’s decision to prematurely redeem US$1.5 billion (AU$2.2 billion) in tier 2 subordinate notes.
The bonds, listed on the New York Stock Exchange, were not due to expire until 2028.
Deutsche Bank was not the only major European financial institution to take a hit on the share market on Friday, with local competitor Commerzbank, France-based Societe Generale and BNP Paribas, and Austria-based Raiffeisen recording notable declines, albeit less pronounced.
These falls have exacerbated contagion fears, following the collapse of three US banks and the downfall and subsequent takeover of Swiss giant Credit Suisse.
“After the disappearance of Credit Suisse as European banking’s problem child, many investors are looking for the next-worst bank to avoid,” Morningstar banking analyst Niklas Kammer said.
“Where are [the] large, inscrutable investment banking exposures? Where are the profitability challenges? Deutsche Bank and Commerzbank will be popular answers due to their troubles in recent years.”
Morningstar European equity strategist Michael Field said the recent market volatility suggests investors are “jittery”.
Reflecting on dampened investor confidence in Deutsche Bank, Field noted “scepticism” around the quality of the bank despite its recent restructuring efforts.
“So, when banking shares are being beaten up, as they are today, Deutsche will likely take it worse than peers,” he said.
Kammer added investors are primarily concerned about “poor risk compliance”, which has been considered a “structural issue” for Deutsche Bank.
“When potential investors ask themselves which bank definitely won’t have skeletons in the closet, Deutsche Bank won’t be their first pick,” he said.
Off the back of turmoil in the global banking system, central banks have pivoted their monetary policy stances.
The impact of aggressive interest rate tightening on bank liquidity has partly contributed to underlying stress, exposing investment portfolio mismanagement among troubled institutions.
The US Federal Reserve has abandoned its overly hawkish stance on monetary policy, with chair Jerome Powell hinting at a near-term pause following the latest meeting of the Federal Open Market Committee (FOMC).
In his post-meeting press conference, Mr Powell acknowledged continued inflationary pressures but said recent banking sector volatility would likely result in tighter credit conditions for households and businesses.
This, he conceded, could undermine the Fed’s long-term macroeconomic objectives, and would hence require a moderation of the central bank’s tightening bias.
“It is too soon to determine the extent of these effects, and therefore too soon to tell how monetary policy should respond,” he said.
“As a result, we no longer state that we anticipate that ongoing rate increases will be appropriate to quell inflation.
“Instead, we anticipate that some additional policy firming may be appropriate.”
The Fed’s latest forward projections point to one additional 25 bps hike, with the median expectation among FOMC members pricing in a funds rate of 5.1 per cent by the close of 2023 and no rate cuts.
