What is going on with Deutsche Bank?

in finance •  2 years ago

It's shares are now down to the level they were in the 1980's. Here is the graph:

Source: twitter - James Macintosh

The last time it's shares were at this level was 1983 - 33 years ago.

The Bank was already in trouble, thanks to being chock full of worthless derivatives, which it hadn't written down the way other banks did after the crash. A year ago, Interpol turned up at the offices of CEO Josef Ackermann and did a document raid. The board forced out Ackermann, and the new CEO John Cryan, announced a restructuring and has been shedding staff and trying to sell assets. But this didn't help, as they failed to raise their capital asset ratio.

Three months ago, the International Monetary Fund (IMF) singled out Deutsche Bank as the riskiest bank on earth and the one most likely to cause systemic risk in the global banking system. It was a clear warning to other banks to reduce exposure to Deutsche and for Deutsche to raise some more capital to strengthen it's balance sheet.

However Deutsche Bank insisted it didn't need to raise capital, and staggered on.

Then the US Dept of Justice delivered the coup de grace - it fined Deutsche Bank $14bn dollars for it's misselling and illegal activities in the run-up to the 2008 Financial Crash. Some Europeans protested that the DoJ was singling out the German bank, but this is incorrect. The DoJ has been busily fining American banks too for similar amounts, and what would have been odd is if it had given a pass to Deutsche Bank simply because the Europeans were putting pressure.

The likes of Citibank and Bank of America took their medicine and paid their fines, they could afford to as they had recapitalised after the crash. The trouble is Deutsche Bank no longer has money to pay it's fine. It's market cap is only worth $18bn. It needs a bail-out.

The only problem is that in January 2016, the EU, at the instigation of Germany, forbade state bail-outs, insisting on bail-ins instead. This was meant to act as a punishment for the so-called "profligate" banks of Italy, Spain and Greece, but has instead bit the Germans on the bum. The Italian banking problem is tiny compared to the giant mess that is Deutsche. If it went down it would be a Lehman Brothers type incident.

You would hope the Germans realised that - but this morning the German magazine Focus reported that Angela Merkel, Germany's Chancellor, had ruled out any bailout ahead of the German general elections due to take place in October 2017.

When journalists tried to get clarification from Merkel, her spokesman Steffen Seibert said, "There is no reason for such speculation as presented there and the federal government doesn’t engage in such speculation."

When they say there is no need for a bailout and no need for speculation, it means that something big is going on and we should all speculate about it!

What happens next? Despite Deutsche Bank's resistance it is going to have to tap shareholders for more capital. If it's rights-issue then fails, the bond-holders are in line for a haircut. The only trouble is that Deutsche Bank bonds are held by pretty much every bank in the western world, and the European Central Bank has been buying their bonds too as part of it's QE program. Oops!

What should ordinary folk do? If you have money in Deutsche, get it out - otherwise you may get bailed in. As for the rest of us - if the Germans handle this badly it'll be a Lehman type event. Only this time we have the option to park money in bitcoin and steem, and not in the banks.

Meanwhile the Italians are enjoying a giant dollop of schadenfreude, especially given how the pious Germans were lecturing them on banking stability at the start of the year.

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jmackin2 James Mackintosh tweeted @ 26 Sep 2016 - 08:15 UTC

Deutsche Bank shares not at record low, but not good. Lowest since 1983 (not inc divis) or 1988 (inc divis) https://t.co/882RH37EQz

Disclaimer: I am just a bot trying to be helpful.

Ironically they are being sued by the DoJ for the exact amount that Apple is being sued for. Side note, Deutsche is a walking time bomb of trash derivatives.

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Well not quite exact - the Apple thing is $13bn and the Deutsche thing is $14bn and the $1bn difference is quite a bit. The difference is that Apple can afford to pay it's fine and Deutsche can't.

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I think it is all clear where it all is heading to..... DB is attracting deposits at 5% APR. This is in the environment of negative interest rates in Erozone. It happens with a bank only if he does not have enough its own money to address deposits withdrawal.

Effectively, covering old deposits with new one - last step before liquidity default.

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Close enough to make it appear as if the DoJ is retaliating for the lawsuit against Apple, or is that just crazy talk?

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I think it's just crazy-talk. The DoJ fined Bank of America $16.7 bn for the same crimes, and JP Morgan Chase got fined $13 bn. It would have been unfair to those banks to let Deutsche off the hook for the same misdemeanours - which is why the Europeans will get no joy when the try to persuade the Americans to lift the fine. Justice has to apply to everyone and they want to send a signal that they won't tolerate illegal behaviour.

Deutsche will have to exit the US market, I think, they can't carry on. But they will still have to pay the fine.

It's hard to find out which banks are exposed to Deutsche Bank. According to the following site, the exposures are as follows:

https://larouchepac.com/20160728/global-banks-exposed-counterparties-deutsche-bank-derivatives

  • In Asia, most exposed to potential Deutsche bank defaults are, with largest exposure, Industrial and Commercial Bank of China, China Construction Bank, Mitsubishi; medium exposure: Bank of China, Sumitomo, and Mizuho Banks.
  • In Europe, the largest exposures to Deutsche Bank are: HSBC, BNP Paribas, Barclays; medium exposure: Santander, Societe Generale, Credit Agricole, Royal Bank of Scotland, and Credit Suisse
  • In the United States, the largest exposure is JPMorganChase; medium exposure: Citibank, Wells Fargo, Goldman Sachs, Morgan Stanley; and lesser exposure: Bank of NY Mellon and State Street Bank.

So withdraw your money from the above banks and put it in a credit union (and hold some in bitcoin)

Great piece and thanks for sharing. Upvoted and now following. Cheers. Stephen