Our Experts Comment the Times Series

See All the Comments

How Did They Not See It Coming?

26 July 2016 by lberuti

The reporting season has been in full swing over the last couple of weeks. If results have been correct (at least with what were generally lowered expectations…), they failed to make a big impression on credit investors so far. That certainly makes CMZB ( Commerzbank AG ) the odd one out. Investors took fright as Germany’s second largest bank disclosed an unexpected drop in their common equity Tier 1 ratio, a key measure of financial strength, from 12% at the end of the first quarter to 11.5%. The decline was caused by “non-operating” valuation and methodology effects. Model adjustments only rarely have such an impact, and people were left wondering why the company did not see it coming. They pushed CMZB’s 5-year-risk premium 8bps wider at 123bps at some stage. It also impacted DB ( Deutsche Bank AG ) which reports tomorrow. Generally speaking that put pressure on the whole banking sector, and the spread differential between iTraxx Financial Senior and iTraxx Main reached 30bps during the morning before settling at 27bps at the close, up from 25.5bps yesterday.