The dangers of doing business while Deutsche

The origins of the efficient market hypothesis are hard to pin down. But most point to Eugene Fama’s seminal 1970 paper as a go to formalisation of the idea that market prices reflect all available information. While oft-disputed, it has been good enough to spawn a multitrillion dollar passive investment industry.

Citi today:

Yesterday morning, [Deutsche Bank] released its 2025 Annual Report and we were initially non-plussed when we saw that DB included an update of its private credit exposure given that it looked very, very similar to what the bank had disclosed at 3Q25 (see Fins in Focus, Oct 29). **Clearly, we were wrong with DB’s stock closing -5.9% **(have been lower during the day).

Huh — if the market has become this inefficient, active managers will be looking forward the next SPIVA drop with glee.

Private credit has been getting it in the neck for a few months, with exposures heavily concentrated in sectors deemed vulnerable to AI-disruption, private equity continuing to suffer a multiyear constipation that might provide relief to levered firms, a growing number of high profile alleged frauds in the space, more general doubts over the path for defaults, and funds increasingly restricting redemptions as investors have headed for narrow exit.

Moreover, new loans appear to continue to have been originated (until at least January this year) at record low spreads, despite record low interest cover, and leverage that turns out to be higher than often appreciated. And so the return picture, even in the rosiest of scenarios, has looked less rosy.

Is the market really so inefficient that merely updating an old statement about private credit exposure enough to knock DB’s stock? Here’s the chart:

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The move was pretty big, and both MainFT and Bloomberg led their DB earnings coverage with the private credit disclosure. So maybe?

But there was a lot going on in the earnings. And the market more generally hasn’t been exactly tranquil. DB is a pretty high-beta business. As such we’d expect its stock to move more than European bank stocks, either up or down.

So we’re not completely sure that passive funds will fall to the bottom of the performance league tables any time soon.

But that we — and others — are scratching our heads over the role that DB’s update on private credit exposure shows just how much the narrative around the asset class has shifted.

**Further reading:
**— Adjusted EBITDA and the masking of leverage (FTAV)
— European private credit borrowers don’t go bankrupt (FTAV)— Private credit loan spreads are tiiiight (FTAV)
— Maybe corporate credit is just boring and fine (FTAV)
— Catastrophising credit? (FTAV)
— Will software eat the creditors? (FTAV)