LONDON, Sept 30 (IFR) - Deutsche Bank Additional Tier 1
securities fell to their lowest ever level on Friday, two weeks
after a potential US$14bn fine emerged, following overnight
reports some of its hedge fund clients were reducing their
The bonds, the riskiest form of debt banks can sell, have
been under intense pressure since mid-September when the fine
for mis-selling mortgage securities in the US first emerged,
stoking fears that reserves for paying AT1 coupons would fall
At their current level, at least two coupon skips are now
being priced in, according to one investor.
Deutsche's 1.75bn 6% AT1 bond callable in 2022 was bid at
69.55 on Friday morning, below its low of 70.2 at the height of
February's savage sell-off. The US$1.25bn 6.25% AT1, callable in
2020, is bid at 69.8, also an all-time low. Both notes have
fallen around 14 points since September 9.
Less risk forms of Deutsche Bank's debt capital structure
has been severely hit. The 750m 4.5% 2026 Tier 2 bond, where
the bank cannot skip coupons, has widened by 37bp to 535bp since
Thursday, according to Tradeweb. A 1.125% March 2025 senior bond
has gapped 46bp wider, to swaps plus 229bp.
The bank's five-year credit default swaps, which reflect the
cost of insuring against a bond defaulting, jumped by 21bp on
Friday to 255bp as market fears escalated.
The sell-off followed a Bloomberg report on Thursday that a
number of hedge funds that clear derivatives trades with
Deutsche had withdrawn some excess cash and adjusted positions,
a sign that counterparties are wary of doing business with it.
The bank was forced to deny it had sought state aid earlier
this week. In a statement on Friday, Deutsche reiterated its
trading clients remained largely supportive.
Unlike February, when Deutsche Bank's AT1s led the whole AT1
market lower, the rest of the sector has proved relatively
resilient so far.
The Bank of America Merrill Lynch CoCo index was yielding
5.9% on Thursday, up from 5.7% in August but well inside
February's high of 7.26%, according to Eikon.
The German banking sector's pain is not limited to Deutsche
Bank, however. A Commerzbank Tier 2 bond shot 19bp wider on
Friday morning to swaps plus 393bp, having announced on Thursday
that it would cut 9,600 jobs in an business overhaul. The bond
was bid as tight as 315bp earlier this month.
Norddeutsche Landesbank was forced to pull a euro seven-year
senior trade on Tuesday as fears around the German banking
sector took their toll.
(Reporting by Alice Gledhill; editing by Alex Chambers)