Deutsche bank....the canary in the Euro financial coalmine....????

So, Deutsche Bank's woo's continue.

Share price is down to EUR6.00 odd, mkt cap sitting around EUR12.35bn (circa AUD20.0bn) and net assets around EUR68bn on total on balance sheet assets of EUR1.35 trillion.




To put this into perspective, the Commonwealth Bank of Australia has a share price of AUD78.00, mkt cap of AUD139bn (EUR86bn) and net assets AUD67bn. Not commenting on issues at CommBank, rather what the market thinks of them as an investment.

Watching Deutsche Bank's share price slide v balance sheet structure looks a lot like Lehman Bros in 2008, only that Deutsche Bank has EUR1.27 trillion in liabilities which is about 2.5x the value of the Lehman Bros on balance sheet liabilities when they went bust.

How will the German Govt and EU Parliament manage this......not going to be pretty no matter which way it goes...be it bailout or bankruptcy.....Ouch time.

 

Good thread Oddjob.

Many folks don't know that DB is the underwriter (ie backstop) to many ETN products (and other stuff too). ETNs are like ETFs, but ETFs have "something" backstopping them, whether it be futures, etc. But ETNs (exchange traded notes) don't have anything behind them except the company that wrote them.

If/when DB goes belly up, those ETNs and other financial instruments are going to zero fast. Looks like DB began getting rid of such ETNs just a couple of months ago. They still have some outstanding at this time.

I imagine we can guess why all the sudden they are exiting these ETNs? I would bet that any next big financial calamity is going to feature DB. Maybe this fall?


https://www.etf.com/sections/daily-etf-watch/deutsche-closing-bulk-etns

https://www.reuters.com/article/us-...notes-to-cease-trading-thursday-idUSKCN1RL231

 

DB sub Eur 6.00 as at COB last Friday......crunch time soon I think.



Wonder if anyone shorted DB a while back?

 

Are there any actual parallels between how Lehman Bros ultimately failed in the final act and Deutsche?

 

Lack of mkt support ie share price decline for sometime now, poor mgmt, inability to raise capital, questionable value of assets and a derivatives position (circa EUR40 trillion) that would choke a herd of elephants.

Add to that, which wasn't a Lehman issue is the outstanding USD14bn fine from the US Regulator which pretty much meets current mkt cap.

 

Mentions of Deutsche bank from 36 minutes.

 

Going back to 2016, the IMF wasn't overly enamored with Deutsche Bank. Refer report.

https://www.imf.org/external/pubs/ft/scr/2016/cr16191.pdf

Extract from this 2016 report already identified Deutsche Bank as a key risk.

73. Deutsche Bank is also a major source of systemic risk in the global financial system(Figure 28). The net contribution to global systemic risk is captured by the difference between the outward spillover to the system from the bank and the inward spillover to the bank from the system based on forecast error variance decomposition. Deutsche Bank appears to the most important net contributor to systemic risks in the global banking system, followed by HSBC and Credit Suisse. U.S. banks such as JP Morgan, Goldman Sachs, and Bank of America also contribute positively to systemic risks, while the Asian banks tend to be the net recipients of systemic risks despite the relative large asset size.

Commerzbank, while an important player in Germany, does not appear to be a main contributor to systemic risks globally.

 

What is happening to Deutsche is uncannily similar to Bear Sterns (government supported sale to Morgan) and Royal Bank of Scotland nationalisation.

I am leaning towards DB being nationalised like UK did to MUCH bigger RBS (RBS was the largest bank in the world when 2008 financial collapse started, now it isn't even in any large bank list).

The lessons learnt from RBS and UK government saga will mean German government will just clean its balance sheet than sell DB at a HUGE profit once confidence is back, rather than barely break even like the Brits did.

The timing for German Government is the catch 22.... As they cant really act until DB is teetering on the brink.

If they announced today DB will be Government backed and nationalised in 30 days time, stock will jump and the German government will have to pay much more for the stocks

If they unilaterally announce today out of the blue that it will be nationlised, there will be outcry from the all investors be they be value investors and long term investors who believe DB will be worth more in the future or hedge funds or shorters that see DB being bankrupt before government bails them out.

 

Merkel may find herself in the "Moral Hazard" zone. Merkel's govt has talked tough against govt aid and bailouts for Italian bank plus the political ramifications at home for her if she squeezed the German taxpayers to bail out Deutsche Bank.....as opposed to what would happen to Germany, Europe and the wider banking system if the German Govt did not step in.

Agree they can't act now, that is if nationalisation of DB is to be the outcome. Gotta let this play out till the credit's are about to roll and all are begging the German Govt to do something...wonder if she has Hank Paulson's phone number???

 

Agree but talking tough about another countries bank and your own country is politically different.

Especially if you consider, had feds bailed out Lehman’s and some of the other mid sized troubled banks.... Would we even had 2008 crisis, since the cost of bailing out these banks however unpalatable would have been much much more cheaper than the crisis, recession and QE.

Now in 2019, if a respected sovereign bank like German reserve bailed out DB at the brink, no investors or shorter will bat an eye lid but applaud them. But it has to be at the brink.

Of course it’s easy looking back in history but 2008 has taught all major sovereign banks it is better to stop the domino.

 

Does this sound familiar????? DB's Bad Bank - V2

https://www.afr.com/business/bankin...-bad-bank-as-part-of-overhaul-20190617-p51yla

Deutsche to set up €50 billion ‘bad bank’ as part of overhaul

Stephen Morris and Olaf Storbeck
Jun 17, 2019 — 4.53pm

London/Frankfurt | Deutsche Bank is preparing a deep overhaul of its trading operations, including the creation of a so-called bad bank to hold tens of billions of euros of assets as chief executive Christian Sewing shifts Germany’s biggest lender away from investment banking.

The plan would see the bad bank house or sell assets valued by the German lender in its accounts at up to €50 billion ($81.5 billion) after adjusting for risk.

Deutsche’s equity and rates trading businesses outside continental Europe will be severely shrunk or closed entirely as part of the revamp, although the final decision is pending, according to four people briefed on the plan. Managers are also set to unveil a new focus on transaction banking and private wealth management.

The proposed bad bank, which is known internally as the non-core asset unit, will comprise mainly long-dated derivatives, the people said.

Mr Sewing is likely to announce the changes with the bank’s half-year results in late-July.

The final scale of the non-core unit has not been decided and the number “continues to oscillate”, but executives are discussing at least €30 billion of risk-weighted assets with an eventual size of €40 billion to €50 billion most likely, two of the people said. At the upper end, it would account for 14 per cent of Deutsche’s balance sheet.

“The cuts need to be radical,” said one senior figure at the bank. “It makes sense for us to put all these long-term, nil-revenue assets in a non-core unit.”

The person added: “We now have the capital and liquidity freedom to do what needs to be done; we couldn’t have acted decisively much sooner because we needed to have built up those buffers.”

The lender said in a statement: “Deutsche Bank is working on measures to accelerate its transformation so as to improve its sustainable profitability. We will update all stakeholders if and when required.”

Deutsche’s investment bank has weighed on earnings in recent years, and made losses in the past two quarters. Along with a series of fines for misconduct scandals, the poor performance of its core business has driven down the bank’s share price to the lowest in its 149-year history. Sentiment darkened in April when a long-rumoured merger with Commerzbank collapsed.

The lender is targeting a return on tangible equity — a measure of profitability — of at least 4 per cent this year, below most rivals. But it generated only a 1.3 per cent return in the first quarter. None of the analysts that cover the group forecast it can achieve its goal without major structural changes.

“Mr Sewing needs to be decisive,” said one senior European policymaker. “The time for incremental change is over.”

Three people familiar with the plan said any perception that Paul Achleitner, the bank’s chairman who had been seen as a gradual reformer, would be a brake on Mr Sewing’s restructuring was outdated. “We all know it needs to be radical,” one said.

While the derivatives destined for the non-core unit still provide some cash flow, all the profit on the deals — and therefore the associated bonuses for those who arranged them — were booked up-front.

In the years since the instruments were first arranged, they have become a major drag on the bank’s capital because of their more stringent treatment under new regulations introduced after the financial crisis, said the people briefed on the plan.

Now that the bank is sitting on €260b of cash and similarly liquid securities, it no longer relies on these assets for cashflow and can attempt to run them down or sell them to other banks with lower funding costs and capital pressures, or to private equity investors eager to scoop them up at a discount, one of the people said.

The German bank believes it can divest the assets without taking large hits to its profit or capital because the long-dated interest rate derivatives are not toxic and have a pre-defined run-off plan, one of the people said.

The bank will retain its better-performing bond trading business — which is ranked in the global top-five by industry monitor Coalition — and its currency-trading operation, which reclaimed the second spot in the Euromoney FX survey last year.

Shareholders sitting on painful losses have been ramping up the pressure since the stock dipped below €6 for the first time this month, down 40 per cent in the past year.

JPMorgan estimated last year that Deutsche’s US operation was losing 25 cents for every dollar of business it does and its global equities business alone loses about €600 million annually.

One reason the bank has waited so long to make the changes was a fear it would close down large parts of the equities and rates businesses at the bottom of the cycle, people briefed on the plan said.

People briefed on the plan said the new non-core unit comprises mainly non-strategic assets and would be different to its prior bad bank, which contained far more loss-making and toxic assets. From 2012 to 2016, Deutsche ran down a non-core unit with about €125 in risk-weighted assets — including a $US4.3b ($6.3b) Las Vegas casino it took over when the developer defaulted — resulting in a cumulative pre-tax loss of €14.6bn over the period. When Deutsche dissolved the bad bank, the roughly €10bn of assets left were reintegrated into the core businesses.

However, investment banking activity in Europe has remained anaemic and the European Central Bank has indicated interest rates are set to remain negative for much longer than expected, meaning that waiting was no longer an option for Deutsche.

Financial Times

 

looks like the german taxpayer is about to buy a bank it didnt know it needed.

 

http://www.startribune.com/a-major-overhaul-of-deutsche-bank-is-in-the-works/511750012/

A major overhaul of Deutsche Bank is in the works
By Economist
June 24, 2019 — 5:23pm

Michael Probst • Associated Press

Deutsche Bank Chief Executive Christian Sewing. Deutsche’s biggest problems are a failing investment-banking arm, high funding costs and the lack of a reliable profit generator.

Earlier this month, following the collapse of merger talks with Commerzbank in April, Deutsche Bank's share price hit the lowest point of its 149-year history.

Fitch, a credit-rating agency, cut the bank's rating to two notches above junk. In May, Christian Sewing, its chief executive, promised "tough cutbacks" in the ailing investment-banking business, with plans to be laid out alongside half-year results on July 24. But on June 16, a leak in the Financial Times revealed the outlines.

The cuts (which Deutsche has not confirmed) go well beyond its investment-banking arm. Its rates and equities trading business outside Europe will be trimmed, and a "bad bank" created to hold noncore assets that generate little or no revenue. At up to €50 billion ($56 billion), that is a sizable chunk of Deutsche's risk-weighted assets.

Cuts to the underperforming trading operations had been expected, but the idea of a noncore unit is new. Like several other big banks, Deutsche had shoved €128 billion of debts into a bad bank in the wake of the financial crisis. After years of restructuring, it is hard to see how on earth it still has dud assets on its books. But apparently so.

Can the moribund Teutonic giant be shaken back into life?

After the leak its share price rose 2%, only swiftly to sink again. Investors fear the changes are too little, too late.

Deutsche's biggest problems are a failing investment-banking arm, high funding costs and the lack of a reliable profit generator, such as the private-wealth management units that keep Swiss banks going through lean years. Sewing's restructuring plan does little to address any of these except the first.

Moreover, they are harder without profits. The firm cannot take big upfront losses. "Deutsche Bank cannot afford radical change," said Daniele Brupbacher at UBS, a Swiss bank (and rival to Deutsche). Under Germany's strong labor laws, slashing head count would mean stiff social-insurance payments.

Offloading dud assets is expensive, too. Deutsche's post-crisis bad bank made losses of €14 billion.

The retrenchment marks a definitive end to Deutsche's aspirations to become Europe's Goldman Sachs. Now it would settle for being a German version of BNP Paribas, a French universal bank with most of its activities in Europe.

 

18,000 jobs to go over next 2 years and DB to exit loss making equities business....Geez, if DB couldn't make money as a broker in a rising market in recent years, doesn't say much of their mgmt or brokers...

https://www.bloomberg.com/news/arti...wing-orders-radical-surgery-for-ailing-lender

 

looks like hes carrying a big ole bag of bitcoins.

 

I'm waiting for the next "Margin Call" style of movie. I think Deutsche bank will be a good base.

 

And that's the final scene in the heist movie...

 

And here's the CEO of DB at present......scene from Das Boat.

 

On what basis, this is non news, other than in London (due to banking jobs leaving the city) and Germany its their bank. Everywhere else the story won’t last more than few days.

DB is much like ANZ, AMP and NAB, burning billions in foreign misadventure. The only people to suffer are the suckers who invested in them.

 

Are you suggesting NAB is as leveraged up on high risk derivatives and bleeding as much money as DB?

Btw I'm not talking about the job losses, in case you don't understand Deutsche Banks story.