Financials Deutsche Bank AG (NYSE:DB): The Impact of Higher Borrowing Cost

Deutsche Bank AG (NYSE:DB): The Impact of Higher Borrowing Cost

Published By Steve Kessler at October 12, 2016 01:16 pm

Reuters reported Deutsche Bank AG (USA) (NYSE:DB) paid more to borrow the interbank transactions, compared to its peers. This fact has aggravated concerns regarding DB’s financial health.

Among 21 other banks, DB is the only bank which paid to borrow over a lending period of nine or 12 months. And, these 21 banks determine the interbank borrowing for the wider banking sector.

The latest readings are a cause of concern for Deutsche Bank’s investors as they show the bank is in an even worse place (regarding borrowing), compared to the nearly bankrupted Monte dei Paschi and the National Bank of Greece. The concerns over a massive sum, which the bank is supposed to pay the penalty for the wrongly sold Mortgage Backed Securities (MBS), is also impacting its stock price. Year-to-date (YTD), the stock has lost more than 44% of its value, and the downtrend seems to continue for a period.

European Money Market Institute’s data which is used to set the Euribor benchmark reflects the same lost confidence in the bank’s performance. Investors knew from the start of the year about the bank’s liquidity position whether it would be able to meet its dues on time. Data revealed that the bank was supposed to pay 0.02% to borrow money from its peers over nine months and for a one year loan it paid 0.06%.

Almost all banks are borrowing for free after the European Central Bank (ECB) took the deposit rate in the sub-zero territory. The central bank has also injected more than one trillion euros into Europe’s market to boost its economy. It is also a common talk these days that the government might be supposed to interfere in the bank’s matters in case the US regulator’s fine is not negotiated to a lower sum. DB’s failure will generate shockwaves across every market it operates in.