This article was written by Michael Snyder and originally published at his Economic Collapse blog.
Editor’s Comment: Derivatives… their collapse is absolutely inevitable. It’s a gamble on global destruction that is almost mathematically certain to take place, someday. Until then, it’s a house of cards. How badly will Deutsche Bank’s dilemma prove to be, and how much will it cost European taxpayers to stop the global economic system from teetering over the edge? No one can say.
But it is entirely clear that the system is not stable, and the world remains at great risk. All the pep talk within the official circles has proven to be meaningless; the next phase approaches. It is happening.
Deutsche Bank Collapse: The Most Important Bank In Europe Is Facing A Major ‘Liquidity Event’
by Michael Snyder
The largest and most important bank in the largest and most important economy in Europe is imploding right in front of our eyes. Deutsche Bank is the 11th biggest bank on the entire planet, and due to the enormous exposure to derivatives that it has, it has been called “the world’s most dangerous bank“. Over the past year, I have repeatedly warned that Deutsche Bank is heading for disaster and is a likely candidate to be “the next Lehman Brothers”. If you would like to review, you can do so here, here and here. On September 16th, the Wall Street Journal reported that the U.S. Department of Justice wanted 14 billion dollars from Deutsche Bank to settle a case related to the mis-handling of mortgage-backed securities during the last financial crisis. As a result of that announcement, confidence in the bank has been greatly shaken, the stock price has fallen to record lows, and analysts are warning that Deutsche Bank may be facing a “liquidity event” unlike anything that we have seen since the collapse of Lehman Brothers back in 2008.
At one point on Friday, Deutsche Bank stock fell below the 10 euro mark for the first time ever before bouncing back a bit. A completely unverified rumor that was spreading on Twitter that claimed that Deutsche Bank would settle with the Department of Justice for only 5.4 billion dollars was the reason for the bounce.
But the size of the fine is not really the issue now. Shares of Deutsche Bank have fallen by more than half so far in 2016, and this latest episode seems to have been the final straw for the deeply troubled financial institution. Old sources of liquidity are being cut off, and nobody wants to be the idiot that offers Deutsche Bank a new source of liquidity at this point.
As a result, Deutsche Bank is potentially facing a “liquidity event” on a scale that we have not seen since the financial crisis of 2008. The following comes from Zero Hedge…
It is not solvency, or the lack of capital – a vague, synthetic, and usually quite arbitrary concept, determined by regulators – that kills a bank; it is – as Dick Fuld will tell anyone who bothers to listen – the loss of (access to) liquidity: cold, hard, fungible (something Jon Corzine knew all too well when he commingled and was caught) cash, that pushes a bank into its grave, usually quite rapidly: recall that it took Lehman just a few days for its stock to plunge from the high double digits to zero.
It is also liquidity, or rather concerns about it, that sent Deutsche Bank stock crashing to new all time lows earlier today: after all, the investing world already knew for nearly two weeks that its capitalization is insufficient. As we reported earlier this week, it was a report by Citigroup, among many other, that found how badly undercapitalized the German lender is, noting that DB’s “leverage ratio, at 3.4%, looks even worse relative to the 4.5% company target by 2018″ and calculated that while he only models €2.9bn in litigation charges over 2H16-2017 – far less than the $14 billion settlement figure proposed by the DOJ – and includes a successful disposal of a 70% stake in Postbank at end-2017 for 0.4x book he still only reaches a CET 1 ratio of 11.6% by end-2018, meaning the bank would have a Tier 1 capital €3bn shortfall to the company target of 12.5%, and a leverage ratio of 3.9%, resulting in an €8bn shortfall to the target of 4.5%.
The more the stock price drops, the faster other financial institutions, investors and regular banking clients are going to want to pull their money out of Deutsche Bank. And every time there is news about people pulling money out of the bank, that is just going to drive the stock price even lower.
In other words, Deutsche Bank may be entering a death spiral that may be impossible to stop without a government bailout, and the German government has already stated that there will be no bailout for Deutsche Bank.
Banking customers have a total of approximately 566 billion euros deposited with the bank, and even if a small fraction of those clients start demanding their money back it is going to cause a major, major crunch.
Deutsche Bank CEO John Cryan attempted to calm nerves on Friday by releasing a memo to employees that blamed “speculators” for the decline in the stock price…
Instead of doing what many have correctly suggested he should be doing, namely focusing on ways to raise more capital for the undercapitalized Deutsche Bank in order to stem the slow (at first) liquidity leak, first thing this morning CEO John Cryan issued another morale-boosting note to employees of Deustche Bank who have been watching their stock price crash to another record low, dipping under €10 in early trading for the first time ever. In the memo the embattled CEO worryingly did what Dick Fuld and other chief executives did when they felt the situation slipping out of control, namely blaming evil “rumor-spreading” shorts, saying “our bank has become subject to speculation. Ongoing rumours are causing significant swings in our stock price. … Trust is the foundation of banking. Some forces in the markets are currently trying to damage this trust.”
Just as important, Cryan confirms the Bloomberg report that “a few of our hedge fund clients have reduced some activities with us. That is causing unjustified concerns.” As we explained last night, the concerns are very much justified if they spread to the biggest risk-factor for the German bank: its depositors, which collectively hold over €550 billion in liquidity-providing instruments.
If you would like to ready the full memo, you can do so right here.
One of the reasons why Deutsche Bank is considered to be so systemically “dangerous” is because it has 42 trillion euros worth of exposure to derivatives. That is an amount of money that is 14 times larger than the GDP of the entire nation of Germany.
Some firms that were derivatives clients of the bank have already gotten spooked and have moved their business to other institutions. It was this report from Bloomberg that really helped drive down the stock price of Deutsche Bank earlier this week…
The funds, a small subset of the more than 800 clients in the bank’s hedge fund business, have shifted part of their listed derivatives holdings to other firms this week, according to an internal bank document seen by Bloomberg News. Among them are Izzy Englander’s $34 billion Millennium Partners, Chris Rokos’s $4 billion Rokos Capital Management, and the $14 billion Capula Investment Management, said a person with knowledge of the situation who declined to be identified talking about confidential client matters.
“The issue here is now one of confidence,” said Chris Wheeler, a financial analyst with Atlantic Equities LLP in London.
So what comes next?
Monday is a banking holiday for Germany, so we may not see anything major happen until Tuesday.
An announcement of a major reduction in the Department of Justice fine may buy Deutsche Bank some time, but any reprieve would likely only be temporary.
What appears to be more likely is the scenario that Jeffrey Gundlach is suggesting…
But Jeffrey Gundlach, chief executive of DoubleLine Capital, said investors betting that Berlin would not rescue Deutsche could find themselves nursing big losses.
‘The market is going to push down Deutsche Bank until there is some recognition of support. They will get assistance, if need be,’ said Gundlach, who oversees more than $100 billion at Los Angeles-based DoubleLine.
It will be very interesting to see how desperate things become before the German government finally gives in to the pressure.
The complete and total collapse of Deutsche Bank would be an event many times more significant for the global financial system than the collapse of Lehman Brothers was. Global leaders simply cannot afford for such a thing to happen, but without serious intervention it appears that is precisely where we are heading.
Personally, I don’t know exactly what will happen next, but it will be fascinating to watch.
Michael T. Snyder is a graduate of the University of Florida law school and he worked as an attorney in the heart of Washington D.C. for a number of years.
Today, Michael is best known for his work as the publisher of The Economic Collapse Blog and The American Dream.
If you want to know what is coming and what you can do to prepare, read his latest book [amazon text=Get Prepared Now!: Why A Great Crisis Is Coming & How You Can Survive It&asin=150522599X].
AWW hell and Germany is already pointing the finger at the US .
Interesting times we live in .
Hammerhead, the Germans can get f#$%ed. It’s THEIR bank, not ours. Not an American problem.
It is, and it isn’t.
If you had even the slightest glimpse of how intertwined US and EU (and Chinese, and Japanese, etc) banks are, your head would go ‘splodey.
Most banks of this size/magnitude keep a metric frigload of money tied up in investments outside of their immediate control (stocks, bonds/munis, commodities, hedge funds, etc), and if they find themselves suddenly cash-strapped, they’ll have no compunction against cashing in the short-term stuff ASAP in order to meet the crisis. This in turn means that stock/bond/commodity markets wind up crapping all over themselves. The longer-term stuff (bonds) can’t be sold immediately for maturity value, but it can be sold for a fraction of it. Ever see a T-Bill get dumped on, especially with China and other actors relying way-too-heavily on them? It ain’t pretty, and the reverberations can bounce back and forth for months over relatively minor hits.
Now imagine if one of these behemoth “OMG Too Big To Failz!” banks get desperate. Your pretty little 401k could see half its value evaporate in less than a week, and that’s only for starters.
You’re not very bright. This affects everyone and we are next.
It was a problem created in the US.
BH1776 is stooped.. He knows so much about Credit and Finance. That’s why he has a Zero FICO score. No assets, No credit and No brains, No BOL, Homeless squatter… Just a big mouth living in his van.
Come on now, NOT everyone is as brilliant and nuanced as you…? Let’s not forget that Germany’s gold was stashed away for safe keeping at the federal reserve bank in NYC…And now, who knows what has happened to it.
When there is a scuffle at the bar, keep your eyes on the bank…
Interesting timing with Russia… Something will give…
Gonna check the fridge. I believe a few brews are still residing there……….
Enjoying mine with popcorn…
Same shit, new day.
as the world collapses before eyes the elites will make sure a WAR will begin and escalate until they get what they want! lower population and new banks with NO debt!
Debt is an illusion, and can be wiped clean even without a collapse. It can even be done right before your very eyes, and you’d never see it coming.
The easiest means is by inflation… during highly inflationary times, creditors run for cover, and debtors can obliterate even their biggest debts with relative ease. I personally would love to see one hit, if only so I can blast away the rest of my mortgage in one check. 😉
It won’t be wiped clean until ALL the elites take such a hit that they are no longer elites.
Resubmitting in the hope that folks here will copy/paste and forward on to friends and family:
OH. Worker Discovers Warehouse in Ohio loaded with Ballots for Hillary Already Filled Out
From highly regarded Armstrong Economics at https://www.armstrongeconomics.com/international-news/north_america/2016-u-s-presidential-election/worker-discovers-warehouse-in-ohio-loaded-with-ballots-for-hillary-already-filled-out/
A worker stumbled upon a warehouse filled with ballots already made out for Hillary in Ohio poised to take that state by any means possible. This is very curious and the story is still developing. But this 2016 election is going to be the biggest fraud attempt perhaps in political history. While our computer projects a Trump victory, it cannot distinguish fraud. It showed that Gore should have won the popular vote. The Supreme Court gave it to Bush. When the votes were counted that the Supreme Court refused to wait for, it turned out that Gore would have won.
This election may be no different. The REAL vote may be for Trump. But the corruption in Washington is so pervasive, it is highly questionable whether or not they will allow him to win. So stay tuned. This may lead to a serious civil unrest this time around.
What the MSM won’t report on Hillary: Clinton Campaign Admits Hillary Used Same Tax Avoidance “Scheme” As Trump. For anyone apoplectic over Trump’s not paying tax consider your own tax return. You didn’t pay taxes on your full income. You availed yourself of various medical, charitable, and other deductions including fixed per-person amounts, benefits for dependents, income splitting for seniors, etc. The difference between you and Trump is simply a matter of scale – and the money to pay the best tax accountants
It will not lead to any kind of unrest. Americans are too much like sheep. They could be sheared completely naked and they would not do anything. A few posts, nothing more. Some letters to Senators. Numerous hot comments. Letters to editors. Then same old same old. What’s worse, then the wolves would know that they will be free to do absolutely anything.
Test, it sure might be a hoax but what’s curious is the she’s completely pulled up stakes and quit campaigning in Ohio. I’ve read somewhere, I just know I did, that Ohio is a key state for a win. I also remember reading somewhere, I just know I did, that Barry carried over 100% of several counties in, wait for it, OHIO. It must be a coincidence of conspiratorial proportions. Concerning your post below, I just know some of you have read up on Danny Williams, bubba’s love child. I remember all those years ago when he was a little kid, Danny not bubba, this story came out. The media needed no help in ridiculing her because she was a cocaine user and a prostitute. It’s so obvious what’s going on, every week it’s more shit we learn, and of course Hillary is the poor victim in all of this. The writing is on the wall folks, it’s over, it’s a rap. Bad shitsa comin so be aware.
Stay quiet Be smart
All that’s needed to wipe the debt out is have the US mint produce 20 – 1 trillion dollar coins. Presto! Next, throw the banksters in jail like Iceland did. Problem solved.
… and one more. The battle is of the pen, not the sword, so I hope people will forward this one on, too….
HOW HILARY DESTROYED THE LIVES OF BILL’S SEX VICTIMS
Gee… what a nice woman Hilary is – NOT. 3:55 min vid here http://www.dickmorris.com/hillary-blackmailed-intimidated-bills-women-dick-morris-tv-lunch-alert/?utm_source=dmreports&utm_medium=dmreports&utm_campaign=dmreports This issue is not to be confused with Bill’s repeated ad infinitum infidelity, Hilary being stupid for not recognizing it, or similar. The issue is Hilary being the “Bimbogate eruptions” LEAD MANAGER, and intentionally destroying women’s lives in her lust for power.
Maybe a few women ought to watch this and learn what a fraud Hilary is.
It would be disastrous for America if Hillary got into office. Why is this woman with blood on her hands, a long history of crime, neck-deep in scandals, serious health issues, standing before us as a viable contender for the highest office in the land???
A vote for Hillary is a vote for tyranny and imprisonment under the New World Order. The plan of the globalist ‘elite’ is to use and manipulate her to achieve their diabolic plans for America.
With this election, we are deciding our future and what will happen to our children and grandchildren – whether we will be a free and sovereign people, or be forced to submit as a nation of slaves under abject tyranny.
Test, Hillary was NEVER confused, stupid or unaware of what bubba was doing. She “had” to do this to ensure political viability for herself. If bubba got what he should have, she would never get a chance to be prez. That’s what’s it’s always been about for her.
And China expanding its boundary on the South china sea……
SNYDER AGAIN? Ho hum, I’m going back to sleep.
Brave my pal, Turn the volume up and listen to this sound for your beloved Killary.
Stolz, ROTFLMFAO! Best video on the hildebeast I’ve seen yet. damn good one. Thanks for that. Everyone else needs to see it also.
I’ve been checking out beachfront property in an island so far away from humanity, that when my preps run out, I will just lie in the sun and die of natural dehydration, starvation, exposure to the elements, and old age; in peace, away from the white collar criminals and their naive and foolish victims.
Better to be a year to two early, Brave, than a day too late
So the article fails to mention that the US slapped Dustshe Bank with a 10 billion dollar fine. I wonder if that has anything to do with thier cash problem.
Wait, Wait, Wait.
Have to wait for TUESDAY cause it is a BANK HOLIDAY on Monday in Germany to see what happens.
If that don’t take the cake. Oh, at least we are not late.
Impossible to stop my ASS …..another bailout is coming and that will buy them another few years
Pretty sure the West has exposure to Douche Bank going tits up. “We” ultimately will be the ones to bail (in) DB out, the German peep, EU and USA middle class. It is for our own good
Oh this show is getting good. Need to start another batch of popcorn. LMAO
Popcorn,eh.I figure tis all falling apart get some good steak/what have you/go out in style before supermarket closes for good,final gorge of things soon no longer available!
Comrades, I but wish y’all a good day, and better nights sleep prior this balloon exploding. Can’t bank sleep but it sure as hell dont hurt.
The CEO at Deutsche Bank many of whom are not even German cause so called the problem then walk away with tens of millions. The justice department wont go after them. So typical “American” look at Enron the CEO walked with hundreds of million whilsts the workers pension funds were decimated.
The system never was stable to begin with. Private Central Banks, by design, create more debt than money with which to pay that debt, until the debt crushes the system.
Holy Super Shemitahs Batman The Skys Falling!!! AGAIN