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

I know it pretty well, but you do realise NAB and AMP have continually been to the brink.... but no one barely mentions them now do they?

Not to forget ANZ burning billions overseas.

 

Yes i know some of our banks needed "special" assistance to stay afloat during the GFC. But size is the key. NAB may have been in the hole for Billions, but Deutsche bank is in the Trillions and VERY wide spread.

But in a way you are correct, I'm sure Deutsche bank will get the assistance Lehman brothers never did. Central banks have got very efficient at plugging holes. If they could plug AIG then maybe they can do the same for DB?

 

Also i think the market is clearly showing there is a difference. One is down about 60% and the other 2000%

 

Add WBC as they along with NAB went to the US Treasury for a few billion in 2009/10 but they are small potatoes on the global stage and the failure of an Aust bank whilst very damaging to Australians and local businesses, would cause too much of a speed hump for the global banking sector.

The key issue with Deutsche Bank is their EUR40 trillion derivatives position which is inter-wound with most other bid banks globally. If DB failed, that entire derivatives book would be crystalised within days and all losses booked by various banks (not just the Germans) which hold DB derivatives contracts on their balance sheets too as assets. Those assets are worth zero. Whilst the global banks talk about have trillion dollar asset value on their balance sheet, their liquid capital position is sub 15% of those assets for most banks, thus I suspect there are probably not too many banks who if they have exposure to DB would have enough capital to match any losses.

Even if a bank had no exposure to DB, in such an environment, banks stop lending to one another as happened in 2008, banks won't lend to business and our credit based system and society comes to a grinding halt as nearly happened in 2008....this time, DB is a much bigger beast with more arms circling the global financial system than Lehman Bros. I was front and centre in the Aust banks in 2008. Interbank lending if you could source it tripled in price, capital to lend out to businesses was rationed and the banks rushed to find ways to increase deposits at bank to substitute for monies they couldn't borrow from other banks both here and globally......it was not a fun time.

If DB fails, then the last GFC will seem like a Sunday picnic in the spring sunshine.

 

Deutsche Bank axes 18,000 staff around the world, including Sydney, New York and London offices

"Deutsche Bank has axed staff from around the world as part of an 18,000-person purge in a 7.4 billion euro ($A11.9 billion) “reinvention” process.

Staff at the German bank’s London office were reportedly told to clear their desks by 11am, with many hitting the pub holding white envelopes containing their redundancy notices.

"Other workers were in tears after being told to pack up their things just hours after the bank dropped the bombshell announcement."

Stressed looking workers wandered out of the building, holding papers in clear manilla folders. They declined to speak with media.

“Anyone who talks (to media) will be a person who doesn’t work here anymore,” he said."


https://www.news.com.au/finance/bus...s/news-story/52e1fcd6057de7eb8c771bb789c7c3ef

 

Oddjob you make a lot of sense. I wonder if you could comment on whether the failure of DB could potentially lead to a collapse of the US Dollar and the end of the petrodollar system for good? As it stands many countries seem to moving away from the US Dollar and back to other standards of trade

 

Oddjob, do you know how derivatives work?
40 trillion derivative position does not mean it can lose 40trillion.

Look up NEt DB potential loss from derivatives. Because it is speculated the potential lose to be $100 billion.

In short if
DB had $20 trillion in derivatives at $3000 long gold
AND
DB had $20 trillion in derivatives at $1000 short gold

DB has $40 trillion in liabilities BUT both cannot happen.

 

No, but it can wipe out the net worth of the company. This would then start a domino effect since so many other companies have positions with DB. Then you can see Trillions vanish.

Anywho looks like the ECB won't allow them to fail. yay for socialism.

 

An interesting question/s 66. Last part first and only my opinion for what it's worth. Keen to hear others opinions.

I think global players / countries are moving away from the petrodollar system regardless of DB. As can be seen in global markets, various countries are reducing US treasuries as part of their fgn holdings and buying gold and other assets. The Chinese set up a gold back Yuan contracts exchange to bypass USD for settling oil transactions (not sure how that's going or volumes) and the Euro countries have built an alternative to the US SWIFT network for international payment settlement.....and all to avoid being beaten up by the US for the privilege of trading in USD. Also, if you can trade in another currency other than USD, you don't need a US bank a/c or US clearing bank to effect a fgn transaction, which then puts you / a company / a country out of reach of any US sanctions....thus the creation of the Euro INSTEX and Chinese CIPS systems that cannot be blocked by the US as they can SWIFT. Subject to how Bitcoin develops and government acceptance or suppression, this also is a factor re USD as the world's reserve currency.

Also don't forget the IMF's "Special Drawing Rights" (SDR's) which countries can use / hold as an asset. The IMF would love for the SDR to supplant the USD as the world's reserve currency. Note: the RBA holds a few on their books.

As countries ween themselves off USD based contracts, the demand for USD should in practice decline over time and therefore it's value against other currencies but not a collapse as this would happen over time ie years not days or months.


As for whether a failure of DB could lead to the collapse of the USD, not sure... as I see four possible outcome for DB.

1) They don't fail, they restructure, downsize and recapitalise with some ECB / EU assistance and slowly de-risk by unwinding their derivatives position over the next decade or so, be it as a listed or German nationalised entity. This would need the markets and all the planets to align and that's a big ask but not out of the question.

2) DB fails and the banking system globally gets thrown into chaos and closes down for a time until the power that be work out a solution. Maybe that's the catalyst to move from USD as the reserve currency to a new reserve currency system based on SDR's, crypto's or PM's / other to restart the global finance system with a fresh base. It that case, the USD like all other national currencies may simply be domestic transaction currencies (at least initially), thus value against other currencies, apart from the new reserve global currency would disappear.

3) The EU, ECB, IMF, BIS etc all see the DB train is about crash and they get all large banks globally to each swallow a chunk of DB via capital injection. DB becomes a bank owned by the other banks globally who slowly wind down DB and slowly write off any DB loses on their books over many years. Governments are good at socialising losses. Whilst painful and an impact on future profitability, it could be much less pain that an outright failure and keep the banking system running as we know it. Just a thought

4) Print money US Fed 2008 style. The ECB starts printing like mad to put capital into DB and other central banks around the world do same to ensure liquidity in global markets.

I think the biggest loser would be the Euro initially subject to level of money printed and any inflationary effects but if most central banks turn on the printing presses, then loss in value of a currency in theory should be felt by all to an extent.

 

I have no doubt in my mind that we are moving towards a global collapse, the only question is if and how. This has the potential to be a catalyst for restoration of a gold standard (hence the big buy up of gold by central banks around the world). 50 years after the end of Bretton-Woods and we are seeing the effects of Fiat plain and clear.

 

The number will be somewhere in between as derivatives like other investments (property, equity) will be revalued from time to time, usually annually. FT is reporting a DB has a EUR588m loss reserve on their derivatives position, based I suspect on a conservative mark to market valuation. What would be real loss if they decided to try and clear that position by selling those assets....more I suspect. If DB failed, contracts are usually marked to zero and that'll be closer to upper end of the spectrum I think rather than EUR100bn. If the estimated loss was EUR100bn, maybe the ECB / other would have backstopped them already to bleed that out???

 

This geeza does a great job talking about what's happening with Deutsche bank.

He discusses the long, short and net positions that Ipv6Ready and many others misunderstand.

 

Latest article on Zero Hedge – where you get REAL NEWS.
Bank Run: Deutsche Bank Clients Are Pulling $1 Billion A Day _JOHNLGALT.
https://www.zerohedge.com/news/2019-07-16/bank-run-deutsche-bank-clients-are-pulling-1-billion-day