Deutsche Bank lures with high interest rates

Deutsche Bank is advertising its new savings offer with a large media presence. Above all, the bank wants to reduce its financing costs. A new credit protection contract is also used for this purpose.

The headquarters of Deutsche Bank in Frankfurt

Dhe Deutsche Bank has recently been advertising in an unusually brisk manner with an offer for private savers. “Access interest” is the name of a savings product in which private investors receive 0.75 percent interest per year for fixed deposits over six months. What looks like a lock interest at first glance, turns out to be a measure with which the bank wants to reduce its high refinancing costs. A new contract for credit default swap (CDS), which was traded for the first time on Monday, will also serve this purpose.

Deutsche Bank is considered risky on the financial market due to its weak earnings and possible burdens from legal risks (money laundering). In January, the bank issued senior non-preferred bonds, the risk premium of which, at 2.3 percentage points, was significantly higher than, for example, for the French BNP Paribas.

In comparison, refinancing via fixed-term deposits is cheap at 0.75 percentage points. The conditions are not entirely new, but they are now being advertised extensively, including TV commercials, newspaper advertisements and YouTube films. According to Max Herbst from FMH-Finanzberatung in Frankfurt, the offer is at least one of the most attractive from local banks for this term. “This makes Deutsche Bank one of the best providers, but the Abc-Bank with the same deposit protection is a tad better,” said Herbst. There is an annual 0.8 percent for fixed deposits for six months. At other European banks without German deposit insurance it is even a little more, for example the French bank Crédit Agricole offers 0.91 percent. Expobank in the Czech Republic pays 0.752 percent via the Weltsparen Internet portal.

New coverage is cheaper

Although the turnover on Monday was still low, the premium for the new CDS contract was only half as expensive as for the previous CDS. The new credit default insurance relates to Deutsche Bank bonds that are considered senior preferred bonds. You are not immediately liable in the event that Deutsche Bank is in trouble. The previous CDS was based on the non-privileged titles. These “senior non-preferred bonds” are used to cover losses from the preferred bonds.

These different risks of the debt instruments are the result of new regulatory requirements, with which the banks are supposed to build up a loss buffer with the help of which the taxpayer is to be protected from the liquidation of a bank. For competitors such as Barclays, there are already two CDS contracts that relate to the respective risk of the bonds. Deutsche Bank’s new CDS contract cost less than 1.00 percentage point on Monday. This means: The protection against the default of preferred bonds in the amount of 1 million euros costs investors an annual premium of less than 10,000 euros.

In comparison, non-preferred title insurance costs almost € 18,000. The CDS premiums are an initial orientation for investors when determining the price of new bonds. The CFO of Deutsche Bank, James von Moltke, welcomed the introduction of the new CDS contract, from which the preferred bonds of other German banks can also benefit. “This reduces the cost of insurance for business partners of Deutsche Bank,” explained Moltke.

Deutsche Bank is also viewed very critically by the rating agencies. Non-preferred bonds are rated by Moody’s and Standard & Poor’s only one notch above junk status. The board of directors of Deutsche Bank wants to avoid slipping into junk status at all costs. This is one of the reasons why refinancing should be carried out even more through customer deposits, to which the attractive fixed-term deposit should contribute.