Major German Bank acquired by the Dutch, or is that the Deutsche?

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.

What happened?

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.

Source: Investopedia

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.

Source: Investopedia

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.