Deutsche Bank shares tumble amid fresh banking fears

Deutsche Bank shares were off 14 per cent in early afternoon trading on the German stock exchange.

Shares in Deutsche Bank, Germany’s largest lender, fell sharply on Friday, dragging down major European banks as fears about weaknesses in the global financial system send fresh shudders through the markets.

Deutsche Bank shares were off 14 per cent in early afternoon trading on the German stock exchange. The drop follows a steep rise in the cost of financial derivatives, known as credit default swaps, that insure bondholders against the bank defaulting on its debts.

Rising costs on insuring debt were also a prelude to a government-backed takeover of Swiss lender Credit Suisse by its rival UBS.

The hastily arranged marriage Sunday aimed to stem the upheaval in the global financial system after the collapse of two U.S. banks and jitters about long-running troubles at Credit Suisse led shares of Switzerland’s second-largest bank to tank and customers to pull out their money last week.

Like Credit Suisse, Deutsche Bank is one of 30 banks considered globally significant financial institutions under international rules, so it is required to hold higher levels of capital reserves because its failure could cause widespread losses.

The Deutsche Bank selloff comes despite the German lender having capital reserves well in excess of regulatory requirements and 10 straight quarters of profits. Last year, it made 5.7 billion euros ($6.1 billion) in after-tax profit.

Deutsche Bank and the German Finance Ministry declined to comment.

Other major European banks also fell, with Germany’s Commerzbank down 8.4 per cent, France’s Societe Generale down 7.2 per cent, Austria’s Raiffaisen off 7.5% and the soon-to-merge Credit Suisse and UBS down 8.6 per cent and eight per cent, respectively.