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Wishful Thinking?

06 July 2018 by lberuti

DB (Deutsche Bank AG) has been in the news recently for all the wrong reasons, and it has driven its share price to record low levels last month. A management reshuffle and a plan to reduce its global presence have failed to revive investors’ confidence. There was probably an element of wishful thinking when the market initially took at face value rumours that ICBC (Industrial and Commercial Bank of China) and JP Morgan were interested in an investment in DB, because the importance of Frankfurt will grow after Brexit. It propelled DB’s stock almost 7% higher and its 5-year risk premium traded down to 135bps. This 30bps tightening did not last long though. If ICBC and DB declined to comment, JPM swiftly rejected the speculation, saying “we are denying the story, it is not true”. 5-year CDS refencing DB's debt managed to hold some of their gain, but the 151bps close was not enough to interrupt the widening trend initiated early February.