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We Are In Good Shape... They Say

28 September 2016 by lberuti

Over the last week, banks have grabbed a fair amount of headlines. Among them, DB ( Deutsche Bank AG ) has been particularly under the cosh following the announcement last week by the US DoJ that they intend to impose a monster $14.5Bln. Ever since, DB has been eager to turn the tide of pessimism that drove its stock to record lows and its 5-year risk premium to record high. To do so, the management tried to end speculation about their capital strength. They dismissed rumours the German bank will have to raise capital and they announced the long-awaited sale of Abbey Life Assurance for roughly £1Bln. They succeeded to some extent and move wider of their 5-year CDS took a breather today. During that period though, there was some spill over to other banks which are exposed to asset backed securities litigation in the US, and the financial sector has underperformed the broader credit market. It was especially true for the most junior debt instruments. On the above grapple, you can see that iTraxx Financials Subordinated is 17bps wider over the last 5 trading sessions, while iTraxx Main is flat.