UntitledWhen a bank has been forced to issue a statement defending its solvency, insolvency is not far behind.  We saw this with Bear Stearns and Lehman.
Denial of a catastrophic problem is affirmation that the problem is very real.

 

Submitted by PM Fund Manager Dave Kranzler, IRD

Deutsche Bank  stock is down over 8% today.  It’s trading at $15.53.  This is 20% lower than the previous low it hit at the apex of the great financial crisis (de facto collapse) in 2008/2009.Untitled

With rumors flying because of DB’s stock performance this year, management issued a statement defending the bank’s liquidity position:  LINK   “Additional Tier 1 coupons” references the debt that was issued as part of a transaction to raise Tier 1 regulatory capital by Deustche Banks.  The accounting behind the scheme – yes, it’s a scheme – is complicated but the regulators permitted DB is issue a security that behaves like debt but is treated as Tier 1 capital for the purposes of measuring the bank’s ability to withstand hits to its asset base.

Suffice it to say that historically, when a bank has been forced to issue a statement defending its solvency, insolvency is not far behind.  We saw this with Bear Stearns and Lehman.  Denial of a catastrophic problem is affirmation that the problem is very real.

Typically the credit markets sniff out a very real problem before the equity market “catches up.”   Deutsche Bank has emerged as one of the most recklessly managed “Too Big To Fail” banks.  Under Anshu Jain’s “leadership,”  DB became a financial nuclear weapon bloated on derivatives, exceedingly risky assets and highly corrupt upper management.  It’s a literal cesspool of financial fraud and Ponzi scheme banking activity.  

The graph of the spread on DB 5-yr credit default swaps shows how quickly the market has determined that DB’s financial risk of insolvency is quickly accelerating:

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Currently DB has roughly $2 trillion assets supported by $68 billion of book value.  The problem is that many of its assets are highly overstated in value and have yet to be written down.  The financial world shuddered at the $7 billion of admitted write-offs DB took in 2015.  The problem is that over 85% of the charges taken by DB were attributed to legal costs.  We know its “on-balance-sheet” assets are being reported at a significantly overvalued stated level.  DB has big loans to the energy sector, Glencore, Volkswagon/Audi and other sundry highly risky businesses.   It would only take a 3.5% write-down of its asset base to wipe out its book value.  

THEN there’s the derivatives.  DB has $58 trillion of notional amount in OTC derivatives hidden off its balance sheet.  The bank will claims most of that is hedged out and the “netted” amount is a sliver of the notional amount.  But ask AIG and Goldman Sachs how hedging / netting works out in the long run.   “Netting” is only relevant when counterparties are prevented by Central Banks from defaulting.  Once the defaults start, “net” becomes “notional” in a hurry.

I did an analysis of several of the big banks in early 2008, including JP Morgan, Wash Mutual, and Lehman.  I took their identifiable assets and wrote down the identifiable home equity loan exposure and some other risky asset classes to levels I thought were conservative.  I had concluded that those banks were technically insolvent.    Eight months later it turned out I my analysis was quite accurate.  Wash Mutual and Lehman collapsed and JP Morgan would have collapsed if it had not been bailed out by the Taxpayers.

The current era’s first big bank casualty will likely be Deutsche Bank, unless the German Government and the EU and U.S. Central Banks determine that a DB collapse would collapse the west, which it likely would.  

To put this in perspective, DB’s stated assets are $2 trillion. Germany’s GDP is just under $4 trillion.  

Then there’s the derivatives…

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  1. Watching this slow motion train wreck and working the problem day after day makes my head hurt. Think I’ll take a break from it all today. Sit back, watch the snow fall and listen to Al Caiola play guitar. I Always liked his versions of High Chaparral and Apache.

  2. Glencore’s fiasco is directly linked to DBank’s troubles and Glencore cannot survive on $15 silver and $25 oil.  As Glencore goes, so goes DBank.  Q1 losses will be a major factor but the rest of the garbage in Dbank’s guts will destroy it.  Taxpayers will not save DBank. There’s not enough deposit funds to bail in DBbank.  It’s collapse will be so epic and destructive I doubt of the Eurobanks will survive. Italian banks will tip over like dominoes. French banks too.  Chaos will result with bank runs that make for million person marches to the banks devolve into riots  Venezuela is there with less than 6 months left before they go TU.  Food and fuel riots will result

  3. I’m still not sold this is the end.  There is a lot of mixed data out there and the news and blogsites seem to only focus on the gloom, Not the boom.  But heck, I’m a buyer of silver up to $20/oz.  I’m going to wait for gold to resettle down (hopefully) before I decide to add!

    Deutch Bank is like playing blackjack against the house.  No matter how many times they lose they eventually end up with ALL your money!!!!

    • @AKGONCI I hear ya man! Ponderance of something THAT BIG I think is quite beyond any of our comprehension, and the moment we gain focus on it, the reality of such a fall immediately pulls our minds away from it in denial. Man, this is deep!

      You buy insurance on your house incase of a fire eh? I.   Dont think many homeowners go to sleep fearful of fire as their forfathers did; the thiugh of TOTAL asset wipeout is no joke!

      So buy metals until your comfortable with your hedge, buy immediate emergency food, fill a feed barrel of water and store it in your garage, and drop 100 bucks on a seed vault (1 acre crops) get some ammo incase you burn through some in the first month & a firstaid kit and there you have it! Primal prep done for under a grand, and your MILES above everyone else around you. Sleep well, prep occasionally, and be mindful… But rest well!

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