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Deutsche Bank Shares Plummet as Default Cover Costs Rise

Voting, Deutsche Bank, default cover, credit default swaps, European banking sector, UBS, FTSE 100, capital position, financial difficulties
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Deutsche Bank Shares Plummet as Default Cover Costs Rise

Deutsche Bank Shares Plummet as Default Cover Costs Rise

Deutsche Bank, one of the world's largest financial institutions, has been hit hard by a sudden spike in default insurance costs, causing its shares to plummet by 8% on Thursday. The German bank's woes have spread across the European banking sector, as shares in UBS also fell sharply, and the FTSE 100 dipped by 1.5%.

The reason for the sudden drop in Deutsche Bank's share price is linked to a rise in the cost of default cover, also known as credit default swaps (CDS). These are financial instruments used to protect investors from the risk of a borrower defaulting on its debt. The cost of CDS has been rising steadily over the past few weeks, but the jump on Thursday was particularly sharp, with the cost of Deutsche Bank's default cover rising by 50% in just one day.

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This news has spooked investors, who fear that Deutsche Bank may be facing financial difficulties. There have been concerns about the bank's stability for some time, as it has struggled to turn a profit in recent years. It has also been hit with large fines for regulatory breaches, including a $7.2 billion settlement with the US Department of Justice in 2017.

Despite these challenges, Deutsche Bank has announced that it will redeem its fixed-to-fixed reset-rate subordinated Tier 2 notes due in 2028, in a move that it says will enhance its capital position. This decision has been welcomed by some analysts, who see it as a sign that the bank is taking steps to improve its financial position.

However, the market jitters caused by the rise in default cover costs are unlikely to go away anytime soon. The European banking sector has been under pressure for some time, as low interest rates and increased competition have put a squeeze on profits. The ongoing uncertainty around Brexit is also causing concern, as it could have a significant impact on the financial sector.

Despite these challenges, there are still opportunities for growth in the banking sector. Many banks are looking to expand into new markets, such as Asia, in order to diversify their revenue streams. There is also a growing trend towards digital banking, which is allowing banks to reduce costs and improve customer service.

So, the sudden drop in Deutsche Bank's share price has highlighted the challenges facing the European banking sector. The rise in default cover costs is just one of the many challenges that banks are facing, as they struggle to adapt to a changing market. Despite these challenges, there are still opportunities for growth, and banks that are able to innovate and adapt will be well positioned for the future.

Keywords: Deutsche Bank, default cover, credit default swaps, European banking sector, UBS, FTSE 100, capital position, financial difficulties, regulatory breaches, low interest rates, competition, Brexit, digital banking, revenue streams, challenges, opportunities, growth.

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