A new European banking crisis. Seriously? Starting at Deutsche Bank? That’s the way markets were pointing on Tuesday as Deutsche’s shares plunged, inter-bank liquidity shrivelled, would-be investors in bank bonds hid in the toilets and speculative short-sellers did the work of the devil. And we all know there’s no smoke without fire, right?
Let’s pause for thought here. The clue to whether Deutsche is ‘rock-solid’ (as its British chief executive John Cryan asserts) or tottering is in its name. Can anyone seriously imagine the German state and corporate establishment allowing the bank that bears their country’s name to go down? Of course they won’t.
The worst that’s at stake here is suspension of the coupon (interest payments) on Deutsche’s €1.75 billion of ‘cocos’, or contingent convertible bonds — instruments designed as loss-absorbing buffers, of which more in a moment — out of a total of some €50 billion of Deutsche bonds of all kinds in issue.
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