The
whole history of civilization is strewn with creeds and institutions which were
invaluable at first, and deadly afterwards.
Walter Bagehot.
All
week long the big story has been continental Europe’s dodgy banks and Germany’s
two giants in particular. Of Commerzbank
and Deutsche Bank, it’s DB that’s of particular concern. By Friday, there was a damage control blitz
underway, centred on an anonymous rumour that DB’s American fine for peddling
bogus mortgage securities, was going to be between 5 and 6 billion dollars,
rather than the 14 billion demanded. It’s anyone’s guess as to the truth, but
with the end of the month and quarter at hand, Wall Street’s Squids and London’s
City Slickers, used it as an excuse to dress up the end of quarter.
As
goes DB next week, very likely determines if Europe’s dodgy banking sector,
imposes a financial crisis on the rest of the world. The official line from Mrs
Merkel and the CEO of DB is that a bailout is neither needed nor requested. So
that’s all right then, though I’m in the camp of the head of investments at
Allianz. If DB is really in trouble, a German government bailout is all but
forced.
Below,
spin and counter spin, while Europe and America
fight a new war of Apple and DB massive fines. Meanwhile the clock ticks on to the US
election, to the Italian referendum, to Brexit starting, to the weakest “recovery”
of modern times already getting past is sell-by date, to who knows what happens
if DB implodes. The final act in the
Great Nixonian Error of fiat money, communist money, gets scarier with each
passing dysfunctional month.
If the financial system goes down, our business is going down and, trust me, yours and everyone else's is going down, too.
Lloyd Blankfein’s CEO Goldman Sachs, Mr. Goldman “Sacks” 2008 threat/promise.
Who’s afraid of the big, bad Deutsche Bank?
Published: Sept 30, 2016 4:50 p.m. ET
German lender is in trouble, but it isn’t a global crisis
Mr. Market is telling investors quite a lot about the Deutsche Bank situation. Most important, he’s saying that this isn’t yet a Lehman situation.After plunging to single digits for the first time ever, shares of the troubled German lender bounced back with a vengeance on Friday after unconfirmed rumors that it was on track to settle a fine related to its mortgage business for substantially less than initially feared.
In Frankfurt, Deutsche Bank shares DBK, +6.39% ended the day with a 6.4% rise at €11.57. U.S.-listed shares DB, +14.02% have extended an early bounce and are up a whopping 14%, helping fuel a broader rebound for U.S. stocks. Deutsche Bank is still down more than 40% in the year to date.
While frustrating to bears, the Friday reaction should be somewhat reassuring to people worried that Deutsche Bank is the next iteration of Lehman. Why? Because it shows that the biggest concern surrounding Deutsche Bank isn’t related to the quality of their assets. Instead, it’s largely about just how large a hit they will take from the U.S. Justice Department and how much shareholders will be diluted if and when the bank moves to raise more equity.
----That’s in contrast, for instance, to Lehman Brothers, which was squeezed as fears about the quality of its collateral led counterparties to require ever larger discounts, or “haircuts,” on that collateral. Lehman’s September 2008 bankruptcy sent waves of panic through financial markets, marking the scariest and most intense phase of the financial crisis.
That
doesn’t mean there’s nothing to worry about. The Thursday selloff was sparked
after Bloomberg reported that some hedge funds had removed excess cash and
positions from their derivatives-clearing accounts. Since confidence is crucial
to the banking sector given its reliance on short-term funding, it’s no
surprise investors would be concerned to hear that counterparties are reducing
their exposure, even if it’s in a minimal way.
Also,
Deutsche Bank has access to the wide range of funding backstops put in place by
the European Central Bank during the financial crisis (see table below).
And Deutsche Bank also sits on substantial liquid assets. Analysts at Goldman Sachs noted in a Friday report that Deutsche Bank’s last reported liquidity reserve stood at €223 billion, or around 20% of its total assets.
High-quality liquid assets stood at €196 billion, or 16% of its total assets, they said. Deutsche’s liquidity coverage ratio, which is a measure of a bank’s highly liquid assets available to meet short-term obligations, stood at 124%—a figure that Goldman noted topped many of Europe’s other large banks as well as some U.S. banks, including Citigroup at 121%.
The Goldman note characterized Deutsche Bank as buoyed by substantial liquidity reserves, but in need of some “good news.” A substantially smaller fine would be a start, but Deutsche Bank and its chief executive, John Cryan, will probably still need to issue more equity before all is said and done.
Anything is possible, of course. Deutsche Bank, if it fails to secure fresh capital and sees its stock resume a downward spiral, could eventually find itself in dire straits. At that point, it’s difficult to imagine the German government wouldn’t find a way to shore up the institution despite the potential political backlash from German citizens and the charges of hypocrisy from fellow European governments that would follow.
But that would also be a recipe for substantial market turmoil as investors waited out the crisis. The International Monetary Fund earlier this year characterized Deutsche Bank as the biggest single potential source of shocks to the global financial system. So, it’s no wonder investors around the world have their eyes glued on Frankfurt.
Deutsche Bank shares claw back gains after hitting record low; Commerzbank slides 4%
September 30 2016
Shares of Deutsche Bank
hit a new record low on Friday before recovering some of their gains in
afternoon trading.The fresh plummet on the European market open to a record low of 9.90 euros were sparked by fresh capital concerns over a proposed settlement by the U.S. Department of Justice and a report that some hedge funds were reducing their exposure to the embattled bank.
The German lender's stock has been on wild ride in recent weeks and dipped below 10 euros a share on Friday morning. By 2.00 p.m. London time the stock was out of negative territory.
The German DAX was dragged lower and the banking sector as a whole in Europe was pushed into negative territory.
Rival German lender Commerzbank saw its shares fall 4 percent after announcing job cuts on Thursday and a plan to cut its dividend. Other European lenders like Unicredit, Barclays and Credit Agricole also saw hefty losses as the session progressed.
At one point on Friday, the cost of insuring
Deutsche Bank's debt against default jumped by 21 basis points on Friday,
according to data from Markit, and trading in Deutsche Bank's so-called
"CoCo" bonds - widely-watched contingent convertible bonds - set a
new record low, according to Dow Jones. These bonds are converted into equity once
a specified event has occurred (if the bank were to undergo a precautionary
recapitalization, for instance).
More
Germany Will Rescue Deutsche Bank If Necessary, Allianz Says
September
26, 2016 — 1:04 PM BST
The
German government will have to bail out Deutsche Bank AG if its financial
situation gets bad enough, Allianz Global Investors AG Chief Investment Officer
Andreas Utermann said.
“I don’t
buy at all what’s coming out of Germany in terms of Germany not wanting to step
in ultimately if Deutsche Bank was really in trouble ,” Utermann said Monday in
a Bloomberg Television interview with Francine Lacqua and Tom Keene. “It’s too
important for the German economy.”
MoreBelow, while DB wobbles, Germany’s Commerzbank goes all-in aspirational. The trick is to get from here to the promised land of milk and honey. All the more so, with a likely global recession ahead. This “recovery” is already very long in the tooth.
Commerzbank targets 2 million new clients in job-cutting overhaul
Germany's second biggest lender detailed its new strategy on Friday as the chief executive of Deutsche Bank (DBKGn.DE) sought to reassure staff and investors that the country's largest bank remained robust after fears over its stability sent tremors through financial markets.
Commerzbank's new customer drive will be based on greater use of multi-channel banking and products such as a digital loan platform and robot-assisted asset management advice.
"We've started to see movement in market share that appeared fixed in cement over decades and that is our opportunity," Chief Executive Martin Zielke told a news conference, adding that Commerzbank's 1000-branch strong network would capture clients abandoned as rival banks reduce their geographical presence.
Deutsche Bank and HVB (CRDI.MI) have been closing branches in their own efforts to boost earnings.
It
also aims to boost its market share among small businesses to 8 percent from 5
percent, helping to generate revenue growth for the retail and small business
segment of at least 1.1 billion euros ($1.2 billion) by the end of 2020.
Negative
European Central Bank (ECB) interest rates are limiting the scope to boost
revenue in a fiercely competitive German banking market, leaving Commerzbank
little choice but to focus heavily on cost cuts.
Zielke,
who has been working on the plan since taking the helm in May, said he intends
to generate 1.1 billion euros in savings through improved efficiency.
More
“The world is a place that’s gone from being flat to round to
crooked.”
Mad Magazine.
In other aspirational news, Mercedes revealed
their luxury Electric Vehicle contender at the Paris Auto Show on Thursday. I
wonder if Mercedes has met Commerzbank?
Oh, well don't get technical at a time like this.
Cary Grant. His Girl Friday 1940
Mercedes just unveiled its first all-electric crossover
September 29, 2016Tesla has the lock on the all-electric SUV market with its Model X. But it won't for long. That's because Mercedes is gunning for the upstart electric-car-maker with its very own luxury EV crossover, dubbed the EQ, that it debuted in Paris Thursday morning.
Historically, the Paris show has been the place that the world's carmakers debut some of their higher-end vehicles. This year, however, the show has been highlighted by eco-friendly family haulers like the EQ and the all-electric Volkswagen I.D.
Clearly, the Germans love to give their EV concepts two-letter acronyms.
Also like the VW I.D., the EQ rides on a new vehicle platform designed by Mercedes specifically for battery-electric vehicles. Like most new chassis designed today, this one is scalable. That means, with it, Mercedes can make all kinds of electric cars — not just a compact crossover.
On the inside, it's as techie as you'd expect from
an all-electric Mercedes. A 24-inch TFT hi-def widescreen display sits atop the
dashboard, playing the role of the instrument cluster and infotainment display.
Taking a page from the Apple playbook, the center console is bordered
with rose gold. What's more, it appears to float in the center of the vehicle.
All controls are operated with touch-sensitive elements, instead of physical
buttons.
As for range, Mercedes says the EQ can do 310 miles (500 km) on a single
charge. It is also said to do 0 to 62 mph in under 5.0 seconds. Of course, it
can say whatever it wants without impunity since the car is a prototype and
won't actually be put on sale.
That said, the EQ likely previews features and specs of future
all-electric Mercedes models. Just don't expect a Mercedes electric SUV to
arrive in showrooms sans door handles, though.
http://mashable.com/2016/09/29/mercedes-benz-eq/#_6xVYZJooPqn
We
close with the view of the EUSSR’s woes from Jason in California. To misquote LBJ’s
Texas metaphor, following Brexit, John Bull is better off outside pissing into
the EU tent, than reluctantly trapped inside pissing out.
Nearing
100 Days Since the Brexit Vote, What's Old Is New Again
N. Jason Jencka October
1st, 2016 3:24 am ET
In political campaigns
(especially American Presidential) there are often many eagerly expressed promises made of what a
candidate will do during their first hundred days in office. These promises
range from repealing controversial laws and regulations to launching grand
national visions. Seeing as the British exit from the European Union was the
dominant global political story of the summer and with nearly 100 days having
passed since, its worthwhile to take stock of the broad situation on both sides
of the Channel . Presently, the issues of economic migration and sovereign debt
continue to plague Europe. As widely reported in the past week, Spain's debt
now exceeds GDP becoming the sixth country in Europe for which this is the
case. The others are Greece, Italy, Portugal, Cyprus & Belgium, the host of
myriad EU institutions. While there is much conversation in the financial media
about Deutsche Bank's potential liabilities to U.S regulators, the broad
reality us that Europe collectively remains mired by minimal growth, maximal
debt and a lack of a cohesive path forward.
With regard to Brexit
and the past ~ 100 days, two points are self-evident. The first is that
uncertainty and resultant swings in the value of Sterling will persist as
market observers try to read between the lines of corporate & political
doublespeak. The second point and the one I shall close with is that while the
short to medium terms consequences of Brexit are vague, seems certain from this
American perspective that Britain is on better off on the outside looking in
toward the EU apparatus than it would be as a reluctant insider looking
wistfully outward.
Lana Clements, Express; http://www.express.co.uk/finance/city/715411/Spain-debt-surges-above-100-per-cent-of-GDP
David
Wighton, Financial News September 4th, 2016 : http://www.efinancialnews.com/story/2016-09-05/david-wighton-brexit-outlook
Patrick
Hosking, Henry Zeffman, Sam Coates, The Sunday Times: http://www.thetimes.co.uk/article/strong-economy-confounds-the-brexit-vote-doomsayers-h7qz0n8g2
N. Jason Jencka is presently studying Finance and
Economics at Sierra Nevada College, located near the shores of Lake Tahoe on
the border of California and Nevada.His interests include the interplay between
world markets and the global political sphere, with a focus on developments of
both sides of the Atlantic in North America and Europe.In his leisure time he
enjoys connecting with those people that have an interesting story to tell and
a genuine desire to make an impact in the world.
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