European shares rebound as Deutsche Bank and Commerzbank rally

European shares rebounded on Friday as Deutsche Bank and Commerzbank rallied, helping stock markets stage a partial recovery from stinging losses earlier in the week.

Deutsche Bank plans to buy back about $5.4 billion of bonds, including some it issued barely a month ago, to reverse an investor stampede away from its stock and debt. The buyback announcement sent the company’s shares surging 11.8 per cent Friday,

And its German rival Commerzbank reported a return to profit in the fourth quarter. Its share raced ahead by 18 per cent.

The recovery came at the end of a disastrous week for banks. The Stoxx Europe 600 Banks Index is down 26 per cent this year depsite rising 5.6 per cent on Friday, and measures of risk on banks and insurers in Europe hit the highest since at least 2013.

Fears about how well European banks can cope with slow growth and low interest rates had pushed European banking shares to multi-year lows this week.

"This is a tool Deutsche Bank can use to reduce the panic," said Roger Francis, an analyst at Mizuho International in London. "It doesn't really address the underlying concern that people have about the bank. They need earnings to pay dividends and subordinated bond coupons and that's where the question marks are."

The move comes just days after Deutsche Bank told investors and staff that it has sufficient funds to pay coupons on its riskiest debt. Co-chief executive John Cryan said the bank is "rock solid".

Deutsche Bank said in a statement on Friday that its “strong liquidity position” allows it to repurchase the senior unsecured notes without any change to its 2016 funding plan. It is offering to buy €3 billion of bonds in the single currency and $2 billion of dollar notes.

"The bank is using market conditions to buy back these bonds at attractive prices and to cut debt," chief financial officer Marcus Schenck said in a statement on the website. "By buying them back below their issuance value, the bank is making a profit. The bank is also using its financial strength to provide liquidity to bond investors in a difficult market environment." – (Bloomberg/Reuters)