Deutsche Bank AG does not have the same issues that hit Credit Suisse Group AG ahead of the latter's forced merger with UBS Group AG, and concerns about the German bank's bail-in-able debt instruments are overblown, according to market participants.

Germany's largest listed lender bore the brunt of market upheaval in the days following the deal. As part of the merger, Swiss authorities controversially wrote down CHF15.8 billion of Credit Suisse's Additional Tier 1 (AT1) debt while preserving some shareholder equity. AT1s — a type of contingent convertible bonds that are converted into equity, or "bailed in," to help resolve a bank in trouble — rank above common equity in the usual hierarchy of investor claims, so the move caused disturbances in the market.

Deutsche Bank is not struggling with the kind of "long-standing and well-known issues" that Credit Suisse had been, and its last reported liquidity coverage and net stable funding ratios are above requirements, S&P Global Market Intelligence analysts said in a March 27 research note. Credit Suisse experienced a sudden surge in asset outflows in late 2022, forcing it to use up some liquidity buffers that eventually fell below regulatory requirements.

Deutsche Bank's liquidity coverage ratio was 142% at the end of 2022, Market Intelligence data shows. Yet its share price dropped more sharply than the wider market index in the wake of the Swiss rescue deal, and spreads on its credit default swaps — a measure of a company's perceived riskiness — widened markedly.

Deutsche Bank declined to comment to Market Intelligence.

The recent credit-default swap (CDS) spreads widening is "related to one-way trades of de-risking across all market participants," JPMorgan analysts wrote in a March 24 note. "[We] don't see this and the associated share price decline as a reflection of the fundamentals of the bank."

Market actors can move the CDS spread of a trillion-euro-assets bank such as Deutsche with an investment of "just a few millions," inflating funding costs, ECB Supervisory Board Chairman Andrea Enria said March 28 at the Handelsblatt Conference on Banking Supervision. Enria called for greater transparency around CDS transactions.

Returns on contingency convertible (CoCo) bonds of European and US banks dropped sharply following the move by Swiss authorities to bail in the Credit Suisse AT1s, S&P Dow Jones Indices data shows, even though the move was contractually provided for under Swiss rules. It highlighted the risks associated with this type of debt and prompted EU and UK regulators to reassure creditors that the usual creditor hierarchy would be upheld in their jurisdictions.

Outstanding perpetual CoCo bonds, which fall into banks' AT1 bail-in-able debt, totaled €156.84 billion as of March 28, Market Intelligence data shows.

Investors were concerned in 2016 that coupons on Deutsche's AT1s may be frozen due to an impending fine related to a US legal case. Since then, the bank has undergone a radical restructuring and posted a €5.7 billion net profit for 2022, its highest since 2007.

It is understandable that investors were nervous after the Credit Suisse writedown and wanted to know which other bank had trouble with its AT1s in the recent past, Ulrike Brouzi, executive board member of DZ BANK, said about Deutsche Bank at the Handelsblatt conference on March 28. Markets have subsequently eased, said Brouzi, whose bank is the central institution for cooperative banks in Germany.

It is easy to see a parallel between Credit Suisse and the Deutsche Bank of an earlier period, but its current strong capital, liquidity and profitability tell a different story, the JPMorgan analysts said.