Deutsche Bank Down Almost 10%

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An ugly year for Deutsche Bank seems like it could get a whole lot uglier. The stock of the systemically important bank holding over $70 trillion of derivatives is under significant pressure today. Overnight it was reported that the US Department of Justice offered to settle outstanding litigation and charges relating to the 2008 financial crisis and the mishandling of mortgage securities for $14Bn. Deutsche Bank refused to settle, and the uncertainty has put the stock back within striking distance of its all time lows from last month. The total market value of the stock is under $20Bn, making the proposed settlement fine extremely significant relative to the overall valuation of the company. This is a live situation, and we’ll see how this plays out. One thing is for sure: this will be a weekend filled with closed door meetings at a variety of financial, regulatory, and governmental institutions.

Instead of going forward with an analysis of the timing of this announcement from the DoJ at this moment, I’m going to wait to see how things unfold in the next 48-72 hours. By then we’ll hopefully have a clearer picture of what’s happening at a micro level and what the potential consequences are at the macro level.

Stay frosty, amateurs: ’tis the season of Lehman – bankrupt 8 years ago yesterday.

When the Music Stops

Global financial institutions have been playing a game of musical chairs since the financial crisis of 2008. In a normal game of musical chairs there are rounds in which the music stops and one player at a time is eliminated due to a deficit of chairs. In this game of financial musical chairs even eliminating one player has been an unacceptable outcome to policymakers for economic and primarily political reasons. However, the chairs have continued to be removed while everyone continues to dance around and the players have convinced themselves either that there will always be a chair for them or that the music will never stop. As a result, we are looking at a final round day of reckoning for the current global financial system of a magnitude that cannot be fully grasped. Not only is there just one chair left and dozens of players still in the game: the game is being played on the deck of the sinking ship of fiat currency. Where does the Brexit fit into this apropos yet admittedly clunky analogy?

It means the music has stopped.

Continue reading “When the Music Stops”