deathA write-down of this magnitude would imply that DB has a NEGATIVE net worth of 238 billion euros.
In other words, DB is technically insolvent.

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Submitted by Dave Kranzler, IRD

That place has been on death-watch forever. However bad it was before Anshu Jain was fired, it has to be worse now.   – Former insider

Deutsche Bank stock has popped 6% today and the move was attributed to an announcement in the Financial Times that DB was looking at buying back several billion in senior bonds in the market at a discount – Financial Times

Before I get to the bond buyback farce, it’s safe to say the jump in DB’s stock is fully attributed to the rumor floated in Europe that the ECB was going to consider buying big bank stocks in an effort to shore up the appearance of a “healthy” banking system.

Furthermore, DB has been relentlessly sold and shorted since the beginning of 2016, down 31% in 25 trading days.  It was due for a technically-driven, dead-cat, short-covering bounce.  Central Bank intervention rumors being the perfect catalyst to frighten hedge fund computers into covering shorts and moronic perma-bulls into buying the dip.

Let’s first examine this notion of a bond buyback.  The first item that will be pointed out by Wall Street puppets is that a bond buyback would enable DB to book accounting gains, thereby padding net income and book value.  But the idiocy of this logic is that gains recognized from buying back bonds at a discount are 100% non-revenue, non-cash generating events.  In fact, a bond buyback is a use cash – it further erodes the liquidity of the entity buying back bonds or stock.

In addition, if DB were to buy back its bonds in the market, why on earth would it pre-announce this?  The only result this accomplishes, other than a brief surge in foolish optimism issued by perma-corrupt stock analysts, is to trigger front-running into DB’s bonds thereby increasing the overall cash cost of the bond buyback.

DB’s announcement was first reported in the Financial Times.  You’ll note the FT asserts that “banks can generate capital gains my buying back bonds at a discount to their face value.”  However this is highly misleading because the only “gains” generated are a non-cash generating accounting “gain” that is now permitted.  It was an accounting change that was passed after the 2008/2009 collapse which gave banks the ability to fabricate net income for the purposes of padding their retained earnings and therefore their book value. It’s nothing more than legalized fraudulent accounting.

Curiously, Reuters referred to DB’s announcement as an “emergency buyback plan on senior bonds.”

The FT alludes to DB having 220 billion euros of liquidity reserves with which to use for a bond buyback.  However, glancing at DB’s latest balance sheet, I can only find 102 billion consisting of 27 billion euros in cash and cash due from other banks plus 75 billion euros in interest bearing deposits with banks.

Notwithstanding the risk embedded in “cash due from others” plus “deposits” with other banks, if DB truly had 220 billion euros of “reserve” liquidity, we would not be having this conversation, DB’s senior credit default swaps would be trading at +100 spread instead of +250, it’s subordinated CDS would be trading at +200 instead of +450 and the stock would still be well above $20 instead of staring down the barrel at $10.

But let’s take a closer look at DB’s overall balance sheet, something which clearly no Wall Street analyst or financial bubblevision moron has ever experienced.   DB’s latest balance sheet from 9/30/15 shows “total financial assets at fair value” of $881 billion euros; 71 billion euros of “assets available for sale; 428 billion euros in “loans:” and 153 billion euros in “other assets.”  All told it reports 1.7 trillion euros in total assets, leading to a declaration of 68 billion euros in “total equity” (book value).   That’s an eye-watering leverage ratio of 25x.

Now let’s take a look at the quality of the assets listed above.  DB has very heavy asset/loan exposure to emerging markets, energy, peripheral European credits (like Greece, Italy and Spain),  commodities, Glencore and leveraged finance/high yield.  And of course there’s the 60 trillion or so in derivatives.  But we are leaving that out for purposes of this analysis.

Although DB made a big production out of the 6 billion write-down and loss it would take in its third quarter, 5.8 billion of that was a write-down of goodwill and intangibles.   Considering DB’s exposure to the collapsing asset sectors listed above, this 5.8 billion write-down of what amounts to thin air anyway is nothing short of shocking.  I would conservatively estimate that the 1.53 trillion euros of financial assets + for sale assets + loans + other assets should be written down by at least 20%.   That would imply that, conservatively, DB could write-down its assets 306 billion euros and likely still be overstating the value of its total asset base.  A write-down of that magnitude would imply that DB has negative net worth of 238 billion euros.

In other words, DB is technically insolvent.  When I did this exact same analysis in early 2008 on JP Morgan, Lehman, Wash Mutual and Countrywide, my write-down estimates turned out to be exceedingly conservative.   I would wager anything that my analysis above is “exceedingly conservative” x 2.

Keep in mind this entire analysis does not include DB’s derivatives.  It’s fine with me if DB management wants to puff up its image by taking a few billion of liquidity that it technically does not have and buy back some of its debt.  I could care less.  But anyone who is not selling their stock into this rally is a complete moron.

The only thing demonstrated to me by DB’s bond buyback bravado is that investors learned nothing from 2008/2009 and bank upper management and directors are even more corrupt now than they were 8 years ago.

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  1. “… DB is technically insolvent…” And, “… (This) does not include (Tens of trillions in) DB’s derivatives …”

    Let’s face it folks, I promise the powers that be will bail out Deutsche Bank because they will not risk the entire financial system going down. The only question is how much will it cost, how much will it hurt AND if it will still be enough to avoid a systemic meltdown.

    • Don´t worry – be happy.

      Yesterday DB CEO said they were rock solid.

      Schäuble said nothing to worry about.

      Draghi smiling – we fix it – no matter the number.

      Haven´t you seen  the sun rising today ?

      Nothing to worry about today.

      First time i´ll get worried if TPTB run out of diskspace to interpret sufficient zeros describing their number and begin confiscating all internet-available computer resources to do so by force.

      Nothing to see yet.

      So please, don´t worry today.

      Maybe tomorrow.

      witok

    • “… obama said anyone who says economy is bad is selling fiction.”

      Sounds like, “If you like your economy, you can keep your economy”.  😉

       

    • That seems like a solid bet to me.  Not only that but it seems likely that they will have to pull in support for Douche Bank from around the world, if it is to be saved from itself.

      Personally, I am tired of saving bankster booty and would just as soon throw them to the wolves (bond holders) kicking and screaming for devouring via bankruptcy proceedings.  We’ve been conditioned to think that  these scum-suckers are necessary and even vital to our financial success.  Neither is true as far as I can see.

       

  2. It is a bad morning for stocks in the UK.  The FTSE is down nearly -3% and approaching 5500 with the Dax below -3% and the CAC <-4%.  Gold is moving up. DB down -7%.

    Everything is looking flakey.  The term “Margin Calls” springs to mind as does PPT. Mine own Barclays is down -6%.

    Is that Armageddon I see?

    • Smart money is selling there stocks and buying pm’s.

      The flight to safety is excellerating into the hard assets.

      Merkel is self destructive in her policys.

      Hillary Clinton is a clone of Merkel.

      Beware of what you wish for.

      Keep stacking till it hurts and then some more

    • The Gold Price Action is scary.  A few minutes ago the price looked to have been slammed down £10 an ounce (28 paper tons?) then it came mostly back.  This is desperation.

      My prepping is insufficiently advanced.  I never thought I would get so stressed out on a rapidly rising gold price.  Still the markets are steadying as are DB’s and Barclay’s shares.

      Damn! I am rooting for the bankers right now….

      Be careful what you wish for…..

       

    • As someone who is a longterm holder of Gold and Silver I think it’s time for all those wishing they had more time to buy God and Silver to shut up.

      Most people on this site have bought and held their PMs through thick and thin.    We have suffered the ‘slings and arrows of outrageous fortune’   and have held strong.

      So let us enjoy the moments when Gold and Silver attempt to rise like a Phoenix.

    • “Is that Armageddon I see?”

      Could be.  That or one of those monster SW dust storms that look like a wall of dirt bearing down on all in front of it.

       

    • Actually the ‘paper market’ has the ability to set the “price” of Gold and Silver to zero.   The reason this is not done is because although the price would be zero there wouldn’t be any available to buy.   Their trick has always been to lower the price to where there is still real Gold available to be purchased.   Now it seems to me they are losing control.   They are finding the price must rise otherwise there suddenly wouldn’t be any Gold or Silver to buy.   My bet is they are playing a losing game and Gold and Silver could suddenly go ‘no bid’.

    • GBS – just in case you were telling me to shut up, by prepping I meant the generator and toilet rolls etc. etc. etc. Not far off but need more bug-in gear.  Most is on its way now.  The way things are moving this could be a bank holiday weekend in Europe…. this is my concern.

      Otherwise I am in and I am up – with some very nice timing.

      .

    • Moar’ Bug Out Gear?

      This reminds me of the stories I’ve heard where everyone wants to sail from California to Hawaii on vacation.  Most that finally make the trip will never attempt to sail back to California and there’s actually businesses that will buy these abandoned sailboats for cheap.  I think the same will happen with most of these people that plan to bug out.  About one week holed up in a tent and they’ll be ready to throw in the towel.

      Unless you’re an ex-military type and spent unending weeks in the field its tough to survive.  Your best bet is to get a remote piece of property and a cheap motor home or trailer plus a whisper quiet generator.  Then hope you’ll never need it!!

       

       

       

    • Funny! I thought he was telling you to shut up too lol I was about to grab some popcorn!!

      That generator is good for one thing in SHTF- good for putting a target on your back!

      Never thought Id agree with powerball, but he’s right about the remote property vs the tent thing (not saying that was your plan, just saying in general)

      You need solar lights, and a smokeless stove to cook. (Attach a bubbler and a fan – think BONG)

  3. I will take real money anytime my friend, can you lend some of yours,
    I will pay you back in fiat w/interest I promise.
    One must be ” Blind as a bat, to not see what is coming to a town near you.”

    Keep stacking till it hurts and then stack some more.

    • Remember, in the aftermath, bankers either eat a bullet, or they get the “vilkage $hit collector” job as pennance for their part in destroying the world.

      Jesus hated Lawyers & Tax collectors (bankers for the state)

      So remember, when your opening that mad max can of dog food, and a banker approaches….if your christian side peaks out….Jesus hates these guys!

      So fling a splotch of dogfood in their eyes, yank their britches up hard and kick em out of your camp! …and you cant tell them “Jesus Loves You!” Because that would be blasphemy, lol!

      You’de be lying about JC…gotta stay on his good side incase you need rain or something!

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