Banking crisis fears ease as Deutsche rallies

Shares in Deutsche Bank jumped 14% today, recovering their entire plunge this week, as talk that it may start buying back its own debt began to reassure investors.

Shares in Germany’s biggest lender, which employs more than 6000 people in London, are still down 33 % since the start of the year. Yesterday the bank’s British chief executive John Cryan and Germany’s finance minister Wolfgang Schäuble sought to reassure markets over Deutsche’s financial strength.

Today the cost of insuring Deutsche Bank debt fell for the second day from a peak of 243.8 basis points to 232.8, still twice the level of a year ago. That means to protect $10 million (£7 million) of debt for a year using credit default swaps investors must pay $232,800.

Some investors welcomed talk of debt buyback with Neil Smith, analyst with Bankhaus Lampe, saying: “With ample liquidity it makes perfect sense to buy back bad debt, especially for banks like Deutsche which are shrinking their balance sheets.”

But Gary Greenwood of Shore Capital said: “I don’t think anything has fundamentally changed overnight. The worries about insufficient capital level and weak returns are still there.”

European markets rose by around 2% while the FTSE 100 ended three days of losses, showing a 1% gain. RBS shares led the way with a 2.4% rise followed by Barclays at 1.8% and HSBC at 1.3%.