As per a German weekly news magazine, the country's government rejected any aid to help Deutsche Bank, which has been slammed with "a $14 billion fine in the U.S. for mis-selling mortgage-backed bonds before the financial crisis of 2008." It was this that caused the massacre.
Skepticism over the health of this German bank and its ability to pay huge likely fines tormented the stock lately, despite attempts by its senior executives to convince investors that the bank would not require any kind of government aid. If this controversy was not enough, in June IMF had indicated that "Deutsche Bank's global links make it biggest potential risk."
Adding to concerns, earlier this year, the Federal Reserve objected to the capital plan of its U.S. unit, Deutsche Bank Trust Corporation, for the second successive year and cited "broad and substantial weaknesses" in its capital planning processes.
While this Deutsche Bank-related confusion and its contagion might have an adverse impact on the European financial exchange-traded fund, the iShares MSCI Europe Financials Sector Index ETF (NASDAQ:EUFN), there are several other corners of investment which may feel the pinch of Deutsche Bank's issues. DB shares have slumped over 43% so far this year (as of October 6, 2016) (see all financial ETFs here).
What About Deutsche Bank ETNs?
As per the source, Deutsche Bank has issued 20 exchange-traded notes (ETNs) as of now for U.S. investors, though 19 of them are listed for trading. A few of Deutsche Bank ETNs are the Deutsche Bank FI Enhanced Global High Yield ETN (NYSEARCA:FIEG), the DB Gold Double Long ETN (NYSEARCA:DGP), the DB Crude Oil Double Short ETN (NYSEARCA:DTO) and the Elements DJ High Yield Select 10 ETN (NYSEARCA:DOD).
Now, investors should note that ETNs are debt securities issued by a bank that are senior but unsecured. Being structured as ETNs, the above-mentioned products carry an associated risk of the issuer's creditworthiness. If the company goes bankrupt, ETN investors have a high risk of losing money, especially because ETNs are unsecured debt.
Then again, investors should note that these ETNs are senior debt too, meaning they are loans or securities that get paid before other loans or securities, if the issuer goes bankrupt. Plus, as per etf.com, default risks of Deutsche Bank's three largest ETNs are medium. Notably, Deutsche Bank has a Zacks ETF Rank #3 (Hold) at the time of writing, while its growth and momentum scores are extremely unfavorable at "F."
So, even if it is not too worrisome holding Deutsche Bank ETNs right now, it is not risk-free either. In the current scenario, it will be wise for edgy investors to exit Deutsche Bank ETNs.