Deutsche Bank Bounces as Analysts Reassure on Financial Health

(Bloomberg) — Deutsche Bank AG shares rebounded and the cost of insuring its debt against default eased on Monday after sell-side analysts sought to reassure that the German lender’s financial health was sound.

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Shares of Germany’s largest bank were 5.4% higher as of 12:47 p.m. in Frankfurt, the best performing stock on Europe’s Stoxx 600 Banks Index. Commerzbank AG, Barclays Plc and Banco Santander SA were also among the biggest gainers.

Though there was no clear trigger for the declines on Friday, hedge funds have seemingly turned their attention to Deutsche Bank in the wake of the collapse of Credit Suisse Group and three regional US banks.

“Deutsche Bank is not the ‘weak link’ in the European banking landscape,” Kepler Cheuvreux analyst Nicolas Payen wrote in a note, flagging that the lender had “very solid” fundamentals.

European regulators have pushed lenders to reduce leverage and improve their capital position, resulting in a far healthier balance sheet than during the Global Financial Crisis in 2008.

Monday’s relief was also reflected in a closely watched measure on Deutsche Bank’s creditworthiness: Spreads on five-year senior credit default swaps fell to 198.6 basis points on Monday from as high as 226.9 basis points on Friday, according to CMAQ pricing.

“Deutsche Bank has de-risked and refocused its business model in recent years which should help the bank to generate less volatile and higher profit levels,” Oddo BHF analyst Roland Pfaender said in a note Monday, after reiterating an outperform rating.

The gains also followed German Chancellor Olaf Scholz’s comments late on Friday that there’s no reason for concern about the bank.

Citigroup Inc. analyst Andrew Coombs meanwhile said Deutsche Bank and Commerzbank have “much lower” exposure to the commercial real estate sector — one of the other reasons cited behind Friday’s rout. Coombs added that the segment represents 7% of the bank’s total loans.

The bank’s valuations also suggest room for catch up with peers. Deutsche Bank shares trade at 25% discount to the European banking index on a 12-month forward earnings basis, and they are valued at 0.28 times their book value.

–With assistance from Tasos Vossos and Jan-Patrick Barnert.

(Adds valuation, updates shares)