Deutsche Bank said that customers withdrew money from the largest German lender after a “speculative assault” sent the share price plummeting last month. This highlights the extent of the turmoil in the financial sector.
James von Moltke said that the bank was a victim of a “sentiment driven outflow” after Swiss regulators facilitated the sale of Credit Suisse by UBS on 19 March.
The cost of protecting Deutsche Bank against default surged on March 24 to a 4-year high. This prompted a drop of almost 20% in the share price of its shares in just a few hours.
Regulators have since established that the wild swings in the market were caused by one bet made on the bank’s Credit Default Swaps, which are the instruments used by investors and traders to protect themselves against companies defaulting.
Von Moltke stated that “we were the subject of a speculative assault and this naturally caught our clients’ attention.” “We were in constant contact with our opponents,” von Moltke said. . . It was very satisfying that, with the exception of a small number, no conversations were needed. “People knew what we stood for as a financial institution.”
The disclosure by Deutsche Bank shows how fragile the markets were last month after the collapse of Silicon Valley Bank, and the forced rescue Credit Suisse.
Deutsche Bank chief executive Christian Sewing said on Thursday that the outflows of late March did not have a “significant impact” on its deposit base.
Wealth management clients of the bank withdrawn more than EUR7bn during the last days in March. The bank’s total deposits fell by EUR29bn to EUR592bn during the first quarter.
Von Moltke stated that the majority of the EUR29bn outflows were due to clients moving their deposits into higher yielding products, such as money-market funds. This happened before the turmoil in the last week of March. Von Moltke stated that the outflows stopped quickly as the turmoil subsided. He added that deposits were “stable or up” during April.
Regulators are concerned about the speed with which a CDS spike at Deutsche Bank slashed its share price and, ultimately, alarmed its customers. Andrea Enria has called for an investigation into the “opaque trading” in the CDS markets.
The chaos of March 24 forced Germany’s chancellor Olaf Scholz publicly to dismiss any comparisons made between the lender and Credit Suisse.
Sewing said on Thursday that Deutsche Bank’s funding is “so diverse that it makes a huge difference to other banks”, noting that 73% of its deposits come from domestic clients, mostly retail and corporate.
Deutsche Bank announced Thursday that its first-quarter profits were at a record high despite the turmoil in March. Pre-tax profits increased 12 percent to EUR1.9bn, a 12-percent increase from the year before. This was higher than analysts’ expectations of EUR1.7bn.
Anke Reingen of RBC Capital Markets said that the results exceeded expectations were “reassuring”.
The bank announced that it would accelerate its cost-cutting efforts and raise its savings target to EUR2.5bn by 25%. Around 800 senior back-office jobs will be cut “immediately”. The new restructuring is expected to result in EUR500mn of one-off costs by 2023.
Deutsche Bank released its quarterly results just hours after the bank announced a shake-up in management that included Christiana Riley who was the head of the bank’s US operation and has joined Santander.
Stefan Simon, the chief administrative officer, will assume Riley’s duties as part of this change. Claudio de Sanctis will replace Karl von Rohr as the head of wealth and investment management. Karl von Rohr’s contract will expire in October.