Tuesday, 12 July 2016

Deutsche Bank - alarm signals?

From the many warnings about the state of the Euro banks, I imagined that the Italian banks would be the first to hit crisis this Summer, then Greece and Greek defaults. 

However, thesere's an increasing amount of 'noise' around Deutsche Bank. Now I'm in no way qualified to guage the liquidity of banks, but one worrying factoid struck me. I've long been concerned at the $500 trillion of derivatives that still plague global wealth; this obscene and irresponsible magnification of money was also responsible for putting bare-breasted Africans in Chinese T-shirts, jeans and trainers, giving them 2G phones and directions to the Med.  Anyway, it seems that DB is holding around a tenth of all global derivatives - some $52 trillion worth. It's like a game of financial Jenga with 30% of the sticks already gone. 

With all of the Eurozone dependent on German wealth to keep the continent out of trouble, this doesn't seem quite healthy to me. Perhaps financial types can provide some assurance?

15 comments:

Poisonedchalice said...

The whole worrying story is here - http://www.bdlive.co.za/world/europe/2016/07/11/fears-rise-on-deutsche-banks-fall-from-grace - the value of DB has halved in recent weeks and its current value is one tenth of what it was in May 2007.

I think the one thing that Andrea Leadsom said that was very erudite was "Brexit didn't cause the problems we see today; it merely revealed them". Brexit was another stick removed from the already tottering game of Jenga which could come crashing down. Although we can never distance ourselves from the EU completely, getting out while we still can would be a smart move.

Coney Island

Demetrius said...

Think of DB as a very high skyscraper without any foundations built on ground which is a mix of sand and clay. Incidentally, it has a lien on the freeholds of most British leasehold retirement developments.

RAC said...

I came across this article earlier this morning and to tell the truth didn't understand it, are there any financial types out there who can translate it into layman's terms please.........

roadtoroota / by Bix Weir / 7/11/16

Europe is imploding as we speak. From riots in Berlin to ATM runs in Italy to Deutsche Bank begging for a 150B Euro bailout – all the controls are breaking down and there is no way to stop it.

Many people are asking…WHY NOW?

I think it has to do with the BREXIT derivatives that start paying out this week.

Let’s face it – the BREXIT was unexpected by the elite even up to the evening of the vote. TRILLIONS in FX bets were gambled on the outcome and those who were supposed to be “in the know” got it wrong. Now they have to pay up according to the rules set out in the ISDA Master Derivative Agreements and individual derivative contracts on OTC Derivative Market.

There are various time frames for settlement of derivative contracts but most are either settled in 3-4 weeks after the event or 10 business days after the end of the quarter. The BREXIT vote was held on June 23rd and the results were finalized on June 24th.

That puts us at “Settlement Dates” roughly starting tomorrow (if you count the 4th of July as a holiday) and going through the next few weeks.

As I believe that many of these contracts will not be fulfilled we will run into immediate counter-party failures blowing apart the “derivative hedges” that were supposed to offset losses. Then, all of a sudden, the “notional value” in the Quadrillions that is claimed to be hedged against turns into the real deal.

So expect the rumblings in Europe to begin to turn into a REAL collapse nearing the end of this week and getting worse as we move through July.

Anonymous said...

Deutsche Bank was not chosen by Bayer in it's recent bid to buy Mosanto. That in it's self should set the old radar alarms ringing.

Gordon the Fence Post Tortoise said...

STAND CLEAR

Rossa said...

It's not just the banks or other financial institutions. The contagion runs into the insurance companies too. If those dominoes start to fall down then watch what happens with the big pension funds and so on. The whole economic system is crumbling slowly into the abyss. What TPTB will do about it, we will have to wait and see. There are some in the alternative financial media with a belief that it is a controlled collapse to scare us all into accepting true globalisation, the NWO that the IMF, World Bank, BIS etc., want to impose on us. It will be presented as the only way to 'solve' the crisis that They created in the first place to line Their own pockets.

IMO, it's too late. They lost control of their complex Ponzi scheme some time ago. I'm not convinced They can pull it off. Japan is reported on Zerohedge to be creating $10tn in 'helicopter' money which just seems to be a last ditch attempt to avoid the disaster they know is coming. That's a hell of a lot more than the $150bn, BD are supposed to want. But then realistically all of this is just numbers on a computer somewhere so the end game may have to be a global reset to zero. Though how that would work is anyone's guess and I doubt we'd be the ones to benefit from it in the long run.

Anonymous said...

The collapse of a German bank may be the least of our problems:

PUTIN SENDS DIRE WARNING TO HUMANITY

https://www.youtube.com/watch?feature=player_embedded&v=wnqyQW6EFeg

Steve

John Miller said...

It's all about belief.

The politicians beleived that the EU is the way to go. (Only Gove thought the opposite. The rest were just chancers. And Boris just gave up with a boo-hoo? I think not.) And politically it is - for politicians, but no one else.

But the stronger economic belief - that the EU is a huge pile of shit about to exit a distended rectum - is now starting to take hold.

The big question now (we need a Churchill to do this) is how quickly can we extricate ourselves from the EU?

People I respect and have more knowledge of the circumstances - step forward Mr Redwood - are saying that we should delay triggering Article 50. Well, I think we are Italy, 7 September 1943. Leave means get the hell out of here before it all goes to ratshit.

Worked for Italy but haha! - not for Mussolini.

Anonymous said...

Deutsche bank, Commerzbank any number of the Landisbanks are all bankrupt. In an idle moment I plotted Commerzbank's stock price, it's due to hit zero about April next year. Deutsche bank shortly thereafter.

Of course, it'll be bailed out (or in) sometime before then, but you could take a punt on it at Eur 2.5 just before the German government bails it out (again) you'll probably see its stock rise to Eur 10 in no time. Then FFS sell, sell, sell.

Funny how none of this shit was mentioned before June 23rd!

James Higham said...

What's a crash anyway, if most of it is invented?

Cascadian said...

I am far from the expert you seek, but it has been obvious for quite some time that many European banks are in fact insolvent holding "assets" marked far above real value. (Think Northern Rock though in this case more like mortgages on Spanish real estate, and government AAA bonds)

Their fractional reserve assets are over-stated, they fail any rational stress-test analysis.

What to do? Well who would wish to predict the rampant stupidity central banks resort to, another Cyprus? quantative easing? (devaluation by another name), forget or ease the stress tests? call in Gordon Brown/Ed Balls? so many "good" options.

If one bank fails a domino effect as witnessed in 2008 will occur. Holding money in any of these banks is probably not sane just in case a Cyprus or Greece is re-enacted.

Raedwald asks for re-assurance, I can only think that national hubris would never allow a Deutsche anything to fail disastrously, so a bail-in will be arranged, we will all be a little poorer, and the stupidity will continue.

Nothing was learned in 2008, except the tolerance for theft from the electorate was higher than governments expected.They now seem to be searching for price discovery of that tolerance before riots are instigated. Zimbabwe is there, Venezuela is close, Greece is bubbling. Germany is surprisingly fractious.

Nick Drew said...

In the short term, Germany (having watched what US and UK did in 2007/8/9) will bail out DB: the economic depth they have available to throw at this problem is quite sufficient

though Greece will be smartly sent to the back of the queue for German largesse ...

Sebastian Weetabix said...

Aren't all those lovely derivatives supposed to net to zero? Hah.

Cuffleyburgers said...

Nick - I think the point is that the potential hit for DB is not mere billions but trillions. It is true that most of their exposure will presumably net out but if even 1% of it doesn't then that is a 500bn euro hole - I can well imagine a certain amount of stress if somebody were to suggest filling it with taxpayers' money.

Anonymous said...

Despite the name DB has been since the nineties a US bank based in London, and headquartered in Frankfurt for historical/political reasons. The retail arm in Germany is of little significance to the main investment banking operation. They are in fact probably well placed to benefit from Brexit.