Deutsche Bank Wobbles.... World Panics!

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**Easy E**

The end of the financial world is nigh...... again!

http://www.wsj.com/articles/the-ghost-of-lehman-brothers-haunts-deutsche-bank-1475193863

Eight years ago this month, Lehman Brothers failed in large part due to panicked hedge funds pulling their money. With some big hedge funds worried enough to cut their exposure to Deutsche Bank AG, the parallel is obvious—but also deeply misleading.

Deutsche Bank’s shares have plummeted in recent weeks after The Wall Street Journal reported that the U.S. Justice Department suggested the bank pay $14 billion to settle allegations around mortgage securities. The bank expects to agree to a lower figure.

Some hedge-fund clients have grown concerned about their exposure to the German lender, prompting them to pull assets and forcing bank executives to step up reassurances about its stability, according to people close to clients and the bank.

Hedge funds face the same dilemma all bank customers face. The gains from sticking with Deutsche are very small, while the potential losses if it were to run into trouble are very large.

“Everyone is hypersensitive,” said one hedge-fund manager caught out by the Lehman collapse. “Lehman’s taught everyone that there’s very little upside in keeping your exposure.”

DEUTSCHE BANK SHAKES MARKETS

Worries about the German lender reverberated through markets Thursday and Friday

Lehman failed the way all banks fail: It ran out of cash and liquid assets it could quickly sell to pay clients and counterparties as they ran for the exit.

In principle, the same could happen to any bank, as they never have enough easy-to-sell assets to pay back every depositor immediately. Deutsche is now in focus in part because clients have been spooked by its plummeting shares, down by more than half this year.

But Lehman was particularly vulnerable, due to its reliance on the overnight repurchase, or repo, market and on hedge funds to finance itself. Billions of dollars of cash and other assets from its so-called prime brokerage business drained away in its final few days, while repos couldn’t be renewed and banks and other counterparties demanded extra collateral to back derivatives trades.

Deutsche is different. It has a far more diversified client base, sourced from German retail banking and multiple institutional business lines. It has a lot more liquidity, amounting to €220 billion ($246.8 billion) at the end of June, equal to 12% of assets, against the $45 billion Lehman had a month before its downfall, 7.5% of assets.

Deutsche has a weak capital position made worse by weak profitability, but its problems aren’t as critical as Lehman’s, where losses amounted to more than a tenth of shareholder equity in each of the final two quarters of its life.

Most important, Deutsche has access to the European Central Bank as its house pawnbroker, meaning it can turn even fairly hard-to-sell assets into cash if it needs to. Lehman was refused extra credit by the U.S. Federal Reserve on the basis that it didn’t have enough reliable assets to post at the bank.

None of this makes Deutsche immune. No amount of liquidity could ever be enough if clients or depositors lose faith, because not all assets can be swapped for cash at the ECB. The task Deutsche Chief Executive John Cryan faces is to win back client confidence, and fast.

Expect Mr. Cryan first to try the approach used by Richard Fuld at Lehman: If you are a big Deutsche client, reassuring personal phone calls are likely soon.

However, confidence would more surely be restored by issuing new shares, shoring up the strength of the bank at the expense of existing shareholders.

Deutsche has been resisting this as its stock moves ever lower. One lesson from Lehman is that it too proudly rejected rescue capital, not liking the price. Deutsche should be careful not to follow the same logic.

It all seems like a lot of hype, but as I learned Hype and Rumor fuels the market more than anything else.

**Do_I_Not_Like_That**

There is a great fear at EU HQ that this, plus BREXIT, Italy on the brink, plus the migrant crisis, could be the straw that breaks the back of the European Union...

Only time will tell...

**whembly**

Deutsche Bank also has retail accounts too right?

Wo... that could be worst than the last financial crisis...

**Frazzled**

Stock jumping on lower settlement
https://finance.yahoo.com/m/3d66b69e-9f59-3a58-a9b9-eeeab66dabce/ss_deutsche-bank-jumps-on-report.html

**jhe90**

The EU is not as strong as they make out. Even the powerhouse Germanny is not immune

**godardc**

Do_I_Not_Like_That wrote:
There is a great fear at EU HQ that this, plus BREXIT, Italy on the brink, plus the migrant crisis, could be the straw that breaks the back of the European Union...

Only time will tell...

At last !

**Orlanth**

godardc wrote:
Do_I_Not_Like_That wrote:
There is a great fear at EU HQ that this, plus BREXIT, Italy on the brink, plus the migrant crisis, could be the straw that breaks the back of the European Union...

Only time will tell...

At last !

The EU is in heavy need of reform from the top. But the project itself is popular and the unravelling of the EU will cause a lot of hardship. I for one dont want that.

Besides the Eu is throwing money at its problems right now, as it doesn't want to be the first to blink on Brexit. So Brussels will not allow failure, this is why Greece has had a quiet debt extension and Italy's financial failings are being glossed over.

**jhe90**

Orlanth wrote:
godardc wrote:
Do_I_Not_Like_That wrote:
There is a great fear at EU HQ that this, plus BREXIT, Italy on the brink, plus the migrant crisis, could be the straw that breaks the back of the European Union...

Only time will tell...

At last !

The EU is in heavy need of reform from the top. But the project itself is popular and the unravelling of the EU will cause a lot of hardship. I for one dont want that.

Besides the Eu is throwing money at its problems right now, as it doesn't want to be the first to blink on Brexit. So Brussels will not allow failure, this is why Greece has had a quiet debt extension and Italy's financial failings are being glossed over.

Hiding its weakness and injuries does not make them go away.
The big EU nations cannot carry the Greeks, Italians and Spanish forever.

**Future War Cultist**

It seems Merkel's government didn't help things by initially ruling out a bail out if things went wrong

http://blogs.spectator.co.uk/2016/09/want-bank-rescued-dont-ask-german/

That's a good way to cause a panic that would require a bail out in the first place. Maybe they want the opportunity to demonstrate that they really mean it?

**Orlanth**

Merkel is in the gak because of immigration.

However she can see this crisis for what it is, a financial fine fishing expedition from the US, and she doesnt want to bankroll that.

**jhe90**

Merkel has done barely anything to tackle that one.

She opened the gates wide as she wanted.
Germans not happy, Europe not happy, terror attacks in Europe.

Something ain't working and she was one who declared the open doorway.

**Orlanth**

She had no actual choice. Germany has perma-guilt regarding treatment of minorities.

**1hadhq**

No, there was a choice.
A choice supported by the people.

What happens to DeutscheBank and VW before, seems more like another type of "war" ....

**jhe90**

1hadhq wrote:
No, there was a choice.
A choice supported by the people.

What happens to DeutscheBank and VW before, seems more like another type of "war" ....

Shengan.
She opened her door. She opens all doors.

That's the difference. Once in, you can go anywhere. There is nothing much stopping them.

**motyak**

Let's just nip the "refugees are terrorists" thing in the bud. It's irrelevant to this thread.

**sebster**

Lehman Brothers issue wasn't just in its traditional leveraging. It also had massive bets placed in all kinds of derivatives, particularly in housing. This liability was unstated in financials and the overall exposure was not understood, even at Lehman. Until housing went south, and slowly mortgage backed securities went south, and so in turn the bets Lehman had taken on those investments started to produce billions in new losses for the bank.

It then became clear that Lehman's real leverage was somewhere north of 30:1, and the bank had almost no assets to ride out a period of asset losses.

In comparison, Deutschebank is copping a fine. It's a big fine, but the amount is finite and known. Nor is Deutschebank leveraged anywhere near as much, and its exposure to derivatives is, as I understand it, quite limited.

The fine should drop company valuations - at the simplest level the company will soon have somewhere close to $14 billion less in assets than it had previously. But anything beyond that, that appears to me to be just talk. I mean hell, in this day and age, where we've seen a decade of chronic underperformance by hedge funds, why should we take anything those guys say seriously?