"They are dropping like a stone," warns one European credit strategist as signals from the bottom of Deutsche Bank's capital structure signal a "huge increase in the potential for a coupon skip."
With DB stock tumbling towards record lows again…
Back to an EUR11 handle…biggest drop since Brexit
Bloomberg reports, the bank’s 1.75 billion euros ($2 billion) of 6% additional Tier 1 bonds, the first notes to take losses in a crisis, are crashing… as the world's most systemically dangerous bank faces existential problems once again.
Deutsche Bank AG’s riskiest bonds plummeted after the German lender received a $14 billion claim from the U.S. Justice Department to settle an investigation into the firm’s sale of residential mortgage-backed securities.
“They are dropping like a stone,” said Tomas Kinmonth, a credit strategist at ABN Amro Bank NV in Amsterdam. “The fine, even if reduced, could surpass all provisions held by the bank.”
Interest payments on additional Tier 1 bonds can be switched off if a lender runs into trouble and Germany’s biggest bank has the least available distributable funds among banks in Europe, according to CreditSights Ltd. The bank said in March it had 1.1 billion euros available to pay AT1s for the year.
“Anything above $10 billion will make things very difficult for them,” he said. “This is unequivocally bad for their AT1s. It hugely increases the potential for a coupon skip.”
Then who's next?
As we previously conclude, considering two of the three most "globally systemically important", i.e., riskiest, banks just saw their stock price scrape all time lows earlier this week, we wonder just how nervous behind their calm facades are the executives at the ECB, the IMF, and the rest of the handful of people who realize just close to the edge of collapse this world's most riskiest bank (whose market cap is less than the valuation of AirBnB) finds itself right now.
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