Based on the chart of the KBW Bank Index, Jamie Dimon’s decision to purchase shares of JPMorgan may have been well timed... but the credit markets have a very different perspective on what happens next.
The increasingly unstable footing that we find ourselves standing on is reflected in widening credit spreads that demonstrate that CONFIDENCE is indeed collapsing. We are on the precipice of what can only be described as a rising systemic risk for all markets.
After starting out strongly this morning, with DB stock trading just shy of $17/share, European banks have seen some weakness in the past 30 minutes following a report from Reuters, in which sources were cited as saying that there is "firm support for a deposit rate cut within the European Central Bank's Governing Council."
Deustche Bank stock is ripping 10% higher after confirming old news that it will undertake a modest debt buyback of $2 billion and €3 billion (not including the CoCos). Have no fear though as Wolfgang Schaeuble proclaimed Deutsche Bank is a "strong bank" that ios "resilient" and "well positioned."
As the following chart from Reuters shows, the year-to-date stock price performance for most European banks is on pace to far surpass - to the downside - the dreadful for the global financial system 2008.
DB's Jim Reid today writes that "Markets are crying out for a circuit breaker at the moment." There is just one problem: nobody knows what this circuit breaks would and should be, or if it would even work.
While broad-based contagion from Deustche Bank's disintegration is clear in European, US, and Asian bank risk, there is another major financial institution whose counterparty risk concerns just went vertical...
"Whatever it takes" is not enough, it would appear as the fragility and interconnectedness forced upon the European banking/sovereign finance ponzi has rapidly come home to roost for Draghi and his followers. Peripheral bond risk has flipped from "hold your nose" buys to panic sells with Portugal risk exploding 200bps in the last week. As the European banking system's credit risk rises 2012-crisis-like, it seems belief in a bigger bazooka is fading fast.
"Worse than Lehman" is how one European bond market trader described the carnage this week as the brief respite that ECB monetization and debt-buyback rumors provided yesterday have morphed into utter destruction this morning. European (and US) banks are a sea of contagious red with Deutsche Bank the tip of the collapse spear. Credit risk on Deutsche has exploded this morning with Sub CDS trading up 85bps to a record high 540bps... eerily reminiscent of the pre-Lehman bankruptcy week in 2008.
Hong Kong traders are back from vacation, and with few options on the table, they are buying the one asset that provides the best cover to central banks losing faith, demonstrated most vividly by the total failure of the BOJ, and as a result just as Yen soars above 113, gold has taken out the numerous $1,200 stops and is currently surging to levels not seen in almost a year.