TheChek News Flow

Deutsche Bank is considering buying back several billion euros of its debt, as Germany’s biggest bank steps up efforts to shore up the tumbling value of its securities against the backdrop of a broader rout of financial stocks.

After European banks suffered a second consecutive day of sharp falls, Deutsche Bank is expected to focus its emergency buyback plan on senior bonds, of which it has about €50bn in issue, according to the bank. The move was unlikely to involve so-called contingent convertible bonds which, along with the bank’s shares, have been the butt of a brutal investor sell-off in recent days, people briefed on the plan said.

Banks can generate capital gains by buying back bonds at a discount to their face value.

The news came as Germany’s finance minister Wolfgang Schäuble and Deutsche’s chief executive John Cryan both sought to assuage market fears. Mr Schäuble said he had “no concerns” about the bank, while Mr Cryan insisted Deutsche’s position was “absolutely rock-solid”.

The bank’s shares still fell 4 per cent, taking the decline since the start of the year to 40 per cent.

Other European banks fared even worse on Tuesday, with Credit Suisse falling 8 per cent and UniCredit 7 per cent, as investor nervousness intensified over the relative weakness of European bank capital and earnings amid broader market turmoil. US banks, which have been hit hard in recent weeks, too, were only marginally weaker at lunchtime on Tuesday.

Investors have also been rattled by the prospect of negative interest rates spreading across the developed world. On Tuesday Japan became the first major economy with a sub-zero borrowing rate for 10-year debt as the total of government bonds trading with negative yields climbed to a new peak of $6tn.

Concern about the solidity of bank debt — principally European bank cocos, which can suspend coupons and may convert into equity in a crisis — has prompted an investor dash to buy protection.

A popular credit derivatives index that tracks the likelihood of default of investment-grade debt of European companies and banks was trading at 119 basis points on Tuesday, near its highest level since June 2013.

Broader investor concerns about the health of the financial sector have coincided with more specific questions about Deutsche’s nascent restructuring programme.

The market jitters have come at a turning point in its recent history. The German group had expanded rapidly over the past two decades, buying up Morgan Grenfell and Bankers Trust as it sought to challenge the US groups at the top table of global investment banking.

However, Deutsche drew a line under this strategy last October when it announced a restructuring plan as it cut jobs, shed assets and exited 10 markets.

After the bank’s shares lost 9.5 per cent of their value on Monday, and its coco bonds also came under pressure, Deutsche put out a statement reassuring investors that it could pay coupons on the hybrid capital, which are due in April.

Deutsche Bank has plenty of scope for a bond buyback, with €220bn of liquidity reserves. The bank has hundreds of senior bonds outstanding, with a total value of around €50bn as of September 2015, according to the company.

The cost of buying protection to hedge against declining prices for these bonds has rocketed in the past week and the senior five-year euro credit default swap was trading at 242 basis points on Tuesday — its highest level since the end of the eurozone crisis in 2011.

Deutsche also has €5bn of debt in the form of additional tier 1 bonds, or cocos, it also has €6bn of tier 2 debt and €5bn of legacy tier 1.

A €1.75bn coco bond with a coupon of 6 per cent was trading at 71 cents on the euro on Tuesday. By contrast, a senior unsecured bond maturing in five years was trading at 97.5 cents on the dollar.