After all the turmoil in European markets and the global financial world after Silicon Valley Bank’s failure and the subsequent attack on Credit Suisse, a major German bank has been acquired by the Dutch today. The Netherland's leading bank has acquired the largest German bank. The Deutsche becomes the Dutch.
This transaction is valued at $10 million, which is slightly more than Silicon Valley Bank UK but a lot less than Credit Suisse.
For those who have been following the markets, you may have noticed there has been a run on the banks. This is due to rising interest rates and the fact that there is a general loss of confidence in banks worldwide. Similarly to Credit Suisse and other banks, the German banks have been particularly vulnerable due to their exposure to debts in the form of Credit Default Swaps (CDS).
A credit default swap (CDS) is a financial derivative that allows an investor to swap or offset their credit risk with that of another investor. To swap the risk of default, the lender buys a CDS from another investor who agrees to reimburse them if the borrower defaults.
More importantly is that this is all tied up with Alternative Tier 1 debt, or AT1s. AT1s are market traded securities that don't represent real security and this is what killed Credit Suisse.
Additional Tier 1 capital is defined as instruments that are not common equity but are eligible for inclusion in this tier. An example of AT1 capital is a contingent convertible or hybrid security [often called a CoCo bond], which has a perpetual term and can be converted into equity when a trigger event occurs.
Like Credit Suisse, this large German bank has been also exposed in the same way. Just not as much.
The fact that the Dutch have acquired the Deutsche is an interesting move, as this does not happen very often. Usually the Germans acquire other countries. Nevertheless, the new bank will be called DutchING Bank ... analysts say they are not sure about this branding so, in the meantime, the bank is hiring a new marketing team to try and make this better. You can apply for the new role as the Group's CMO here.
Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal's Financial News. To learn more click here...