For those who may be tired of hearing about the woes of Deutsche Bank, I unfortunately cannot apologize at this time. It is necessary for me to continue cataloguing the adventures of the systemically important German bank because it is one of the key signposts that trouble is brewing. More accurately, trouble is being poured out with another batch brewing right behind it.
Despite reassurances from Deutsche Bank’s latest CEO, all is not well. The stock has lost almost 50% of its value in 2016 after a dismal performance in 2015 as well. So why is this happening now?
The immediate catalyst for the renewed selling was the announcement over the weekend from Angela Merkel proclaiming that DB would not receive a bailout – at least until after the national elections in Germany in September 2017. Bailing out Deutsche Bank may be politically unpopular, but playing this game of chicken and removing the implied backstop of the government over the next year ratchets up the risk of holding any Deutsche Bank equity or debt by several levels. Merkel has been tanking politically due to her handling of the so-called migrant crisis, and her party has suffered some noteworthy defeats in regional elections. Surely now would not be the time to put additional capitalization pressure on a bank with a derivative book several times larger than the GDP of the entire European continent, right?
Merkel’s proclamation comes on the heels of the US DoJ proposing a $14Bn settlement amount for status quo fraudulent banking and mortgage activities that Deutsche Bank ‘allegedly’ took part in over the course of the last decade. That announcement initiated the latest downmove, and this latest communication adds insult to injury. But why now?
Surely the timing of these events could have been altered. After all, both catalysts were simple statements. Neither is definitively binding, and they could both be reversed or altered tomorrow. It’s just chatter after all. So why does it seem like everyone and their grandmother is piling it on Deutsche Bank at this inopportune moment?
There’s a distinct whiff of Lehman in the air…
Deutsche Bank has been called out by many analysts – including myself – as the next global banking patsy. Remember how everything would have been just fine if it weren’t for those pesky Lehman Brothers? It was all Hank, Manny, and Mayer’s fault! We’re looking at the same setup: pile as many bad assets and bets as possible into one bank, cut its legs out from under it, instigate a crisis requiring immediate government intervention, give everyone else billions and trillions of capital and guarantees, and then pretend that everyone else wasn’t always totally insolvent as well.
This time the resolution attempt will most liklely be to kick it up to the IMF level and recapitalize using the SDR. Personally, I don’t think this will be implemented in pure fiat form. It could never work and would just exponentially inflate the problem, but of course that isn’t a guarantee that it won’t happen. If enough informed people step up to the plate and demand a real solution, then those who control the architecture to such a solution would be emboldened to step up. This usually means war. Regimes don’t typically let go of control over the global financial system without a fight.
That’s why Deutsche Bank is important. It looks like they are getting hung out to dry as we speak. A head fake is possible, but I don’t think it is likely. Set an alert for when the stock gets to $10. That’s when contingent convertible bond covenants begin triggering. I’ll spare you the Upton Sinclair style tour of the financial sausage factory here. Suffice it to say, a single digit stock price for Deutsche Bank puts $0 in play. Lehman got there quickly too, and that last step is a doozy…
Keep your eyes open and take additional tactical steps to get your assets outside of the system. Holidays aren’t as much fun when they’re of the banking variety.
Update: Of course now we immediately get the obligatory ‘Deutsche Bank is not Lehman comments. This is official confirmation that Deutsche Bank actually is Lehman. After all, in the words of European Commissioner Jean-Claude Juncker – notorious drunkard and adversary of Nigel Farage – “When it becomes serious, you have to lie.”