The First Crack: Deutsche Bank Preannounces Massive Loss, May Cut Dividend

Tyler Durden's picture

Amid numerous rumors that Deutsche Bank is among the corporations exposed to the VW fiasco, and to be clear there is no news to confirm that, DB has just kitchen-sinked it in a pre-announcement:


Deutsche Bank stock is crashing down around 6% after-hours on the news.



*  *  *

Full Press release: Deutsche Bank expects to incur charges that will materially impact third quarter 2015 results:

An impairment of all goodwill and certain intangibles in Corporate Banking & Securities (CB&S) and Private & Business Clients (PBC) of approximately EUR 5.8 billion. This is largely driven by the impact of expected higher regulatory capital requirements on the measurement of the value of these segments as well as current expectations regarding the disposal of Postbank.


An impairment of the carrying value of Deutsche Bank's 19.99% stake in Hua Xia Bank Co. Ltd. of approximately EUR 0.6 billion. This reflects an updated valuation triggered by a change of the intent of the holding as Deutsche Bank no longer considers this stake to be strategic.


Litigation provisions of approximately EUR 1.2 billion, the majority of which are not expected to be tax deductible. Final litigation provisions in the quarter may be affected by further events before we finalize and report third quarter results.


The impairment of goodwill and intangibles and of the Hua Xia investment will have no significant impact on Deutsche Bank's regulatory capital ratios. Deutsche Bank currently expects to report a fully-loaded CRR/CRD4 Common Equity Tier 1 ratio for the third quarter of approximately 11%, which includes the impact of European Banking Authority Regulatory Technical Standards (\"Prudential Valuation\") that were adopted in the quarter.


Based on these charges, Deutsche Bank expects to report a third quarter income before income taxes (IBIT) loss of approximately EUR 6.0 billion and a net loss of EUR 6.2 billion. Year-to-date results through the third quarter are expected to be an IBIT loss of approximately EUR 3.3 billion and a net loss of EUR 4.8 billion.


Excluding the impact of the impairment of goodwill and intangibles, the third quarter IBIT loss would be approximately EUR 0.2 billion and the net loss would be approximately EUR 0.4 billion, largely reflecting the litigation provisions and Hua Xia impairment. On the same basis, Deutsche Bank expects to remain profitable year-to-date through the third quarter with IBIT of approximately EUR 2.5 billion and net income of approximately EUR 0.9 billion.


As part of the planning for the implementation of Strategy 2020, the Management Board will recommend a reduction or possible elimination of the Deutsche Bank common share dividend for the fiscal year of 2015.


All the aforementioned amounts are estimates. The final amounts will be determined in the coming weeks and will be disclosed in our announcement of  third quarter results, together with details of the implementation of  Strategy 2020, which is now scheduled to occur on October 29.

*  *  *

Is this the first crack (or the kitchen-sink'd last one?) As we asked previously, Is Deutsche Bank the next Lehman?

Submitted by

Looking back at the Lehman Brothers collapse of 2008, it’s amazing how quickly it all happened.  In hindsight there were a few early-warning signs,  but the true scale of the disaster publicly unfolded only in the final moments before it became apparent that Lehman was doomed.


First, for purposes of drawing a parallel, let’s re-cap the events of 2007-2008:

There were few early indicators of Lehman’s plight.   Insiders however, were well aware:   In late 2007, Goldman Sachs placed a massive proprietary bet against Lehman which would be known internally as the “Big Short”.  (It’s a bet that would later profit from during the crisis).

In the summer 2007 subprime loans were beginning to perform poorly in the marketplace.  By August of 2007, the commercial paper market saw liquidity evaporating quickly and funding for all types of asset-backed security was drying up.

But still — even in late 2007,  there was little public indication that Lehman was circling the drain.

Probably the first public indication that things were heading downhill for Lehman wasn’t until June 9th, 2008,  when Fitch Ratings cut Lehman’s rating to AA-minus, outlook negative.   (ironically, 7 years to the day before S&P would cut DB)

The “negative outlook” indicates that another further downgrade is likely.   In this particular case, it was the understatement of all time.

A mere 3 months later, in the course of just one week,  Lehman would announce a major loss and file for bankruptcy.


And the rest is history.

Could this happen to Deutsche Bank?

First, we must state the obvious:  If Deutsche Bank is the next Lehman, we will not know until events are moving at an uncontrollable and accelerating speed.   The nature of all fractional-reserve banks — who are by definition bankrupt at all times – is to project an aura of stability until that illusion has already begun to implode.

By the time we are aware of a crisis – if one is in the offing — it will already be a roaring blaze by the time it is known publicly.   It is by now well-established that truth is the first casualty of all banking crises.  There will be little in the way of early warnings.   To that end, we begin connecting the dots:

Here’s a re-cap of what’s happened at Deutsche Bank over the past 15 months:

  • In April of 2014,  Deutsche Bank was forced to raise an additional 1.5 Billion of Tier 1 capital to support it’s capital structure.  Why?
  • 1 month later in May of 2014, the scramble for liquidity continued as DB announced the selling of 8 billion euros worth of stock at up to a 30% discount.   Why again?  It was a move which raised eyebrows across the financial media.  The calm outward image of Deutsche Bank did not seem to reflect their rushed efforts to raise liquidity.  Something was decidedly rotten behind the curtain.
  • Fast forwarding to March of this year:   Deutsche Bank fails the banking industry’s “stress tests” and is given a stern warning to shore up it’s capital structure.
  • In April,  Deutsche Bank confirms it’s agreement to a joint settlement with the US and UK regarding the manipulation of LIBOR.   The bank is saddled with a massive $2.1 billion payment to the DOJ.  (Still, a small fraction of their winnings from the crime). 
  • In May,  one of Deutsche Bank’s CEOs, Anshu Jain is given an enormous amount of new authority by the board of directors.  We guess that this is a “crisis move”.  In times of crisis the power of the executive is often increased.
  • June 5:  Greece misses it’s payment to the IMF.   The risk of default across all of it’s debt is now considered acute.   This has massive implications for Deutsche Bank.
  • June 6/7:  (A Saturday/Sunday, and immediately following Greece’s missed payment to the IMF) Deutsche Bank’s two CEO’s announce their surprise departure from the company.  (Just one month after Jain is given his new expanded powers).   Anshu Jain will step down first at the end of June.  Jürgen Fitschen will step down next May.
  • June 9: S&P lowers the rating of Deutsche Bank to BBB+  Just three notches above “junk”.  (Incidentally,  BBB+ is even lower than Lehman’s downgrade – which preceded it’s collapse by just 3 months)

And that’s where we are now.  How bad is it?  We don’t know because we won’t be permitted to know.  But these are not the moves of a healthy company.


Jürgen Fitschen will step down May 2016. Jain will step down at the end of this month.


How exposed is Deutsche Bank?

The trouble for Deutsche Bank is that it’s conventional retail banking operations are not a significant profit center.  To maintain margins, Deutsche Bank has been forced into riskier asset classes than it’s peers.

Deutsche Bank is sitting on more than $75 Trillion in derivatives bets — an amount that is twenty times greater than German GDP.    Their derivatives exposure dwarfs even JP Morgan’s exposure – by a staggering $5 trillion.

With that kind of exposure, relatively small moves can precipitate catastrophic losses.   Again, we must note that Greece just missed it’s payment to the IMF – and further defaults are most certainly not beyond the realm of possibility.


Not good.

Not good.

And if the dominos were not adequately stacked already, there is one final domino which perfects the setup.

Meet Tom Humphrey.  He heads up Deutsche Bank’s Investment Banking operations on Wall Street.

He was also head of fixed income at Lehman.

Prior history.

Prior history.

History never repeats.   But it does rhyme.    In market terms, it tends to rhyme just about every 7 years.

* * *

For more read the Zero Hedge piece from April 2014: The Elephant In The Room: Deutsche Bank's $75 Trillion In Derivatives Is 20 Times Greater Than German GDP

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bamawatson's picture

takes a lot of education to be learn how to lose that much "money"

TeamDepends's picture

Uh-oh, biggest crack "since Lehman"!!!

alphamentalist's picture

it is no small irony that the parent shell--deutsche bank AG--is known internally by its abreviation, DBAG

Hype Alert's picture

"An impairment of the carrying value of Deutsche Bank's 19.99% stake in Hua Xia Bank Co. Ltd. of approximately EUR 0.6 billion. This reflects an updated valuation triggered by a change of the intent of the holding as Deutsche Bank no longer considers this stake to be strategic." 


So, I guess they are going to sell it.   Hmmm, problems in China?

kliguy38's picture

First crack??? this thing looks like pinata at a birthday party

Muh Raf's picture

Jain's a twat. Okay, he made money but he couldn't organise the proverbial in a brewery. The job should have gone to Banziger. Now the internal DB governance, controls ans systems are totally out of date. It's a good job BaFin are bigger twats than Jain, if DB were regulated by the PRA they'd be shut down by now, really. Cryan could turn the place around if he's genuine, but he will only succeed if he goes unorthodox and I'm not sure he's got the balls for that.

coinhead's picture

After teh collapse, sure a single waR n1ckle might buh you an Umpire State Building.  But 1 Bitcoin is gonna buh you a whole Umpire!

aint no fortunate son's picture

QE 4 here we come, this is great news!

For Jamie and Lloyd and the rest of the shits anyway... for real people, meh! not so much

Beatscape's picture

Warren Buffett once referred to derivatives as “financial weapons of mass destruction“, and it was inevitable that they would begin to wreak havoc on our financial system at some point.  While things may seem somewhat calm on Wall Street at the moment, the truth is that a great deal of trouble is bubbling just under the surface.  As you will see below, something happened in mid-September that required an unprecedented 405 billion dollar surge of Treasury collateral into the repo market.  I know – that sounds very complicated, so I will try to break it down more simply for you.  It appears that some very large institutions have started to get into a significant amount of trouble because of all the reckless betting that they have been doing.

the rest:


Richard Chesler's picture

Fuck them and their ilk cocksucking parasites!

cheka's picture

no worries, frbny stands at the ready to stem brain drain and 30+ billion holiday bonus pool

might even mention clawbacks to placate the morons

Automatic Choke's picture

how do you say "nailgun" in German?

Manthong's picture

Ist dat hickt dien mierer buck

Yas das  ist dien miener buck

Miener buck,, f’n schmuk… whatever…

Calling the helmet head…….


fockewulf190's picture

Nagelpistole.  Not hard to believe that DB shares are in the green this morning now isn´t it.

PS: Check this just released video from Mike Maloney explaining a recent report published at investment research dynamics:


Perhaps DB is the bank currently being saved?

KansasCrude's picture

Yeah and with Douche Bank tied with JPM for the most derivatives maybe thats $7 TRILLION instead of BILLION in losses.  Nothing would surprise me at this point...The paper mache machine is on hyper drive....devaluing your dollars 24/7.

Manthong's picture

it's all just electrons... heh  heh heh

Mentaliusanything's picture

Smartest Guys in the room .. Aka Enron.

Thats a loss of 6,000,000,000 and it will leave a skidmark the size of Texas

slaughterer's picture

Hear hear.  The selection of Jain over Banzinger is still a mystery to me.  Cryan is also a big mistake.  He is too old fashioned.  

Muh Raf's picture

Yes, he's a bit staid. But DB need that to realign their activities with the basics. Jain squeezed costs to improve bottom line at the expense of infrastructure re-investment. The recent ratings hits have been around poor governance & controls. If you add up all the regulatory fines over the last 2 years that they have to shell out for its around US$3bn. They even got fined by the Dubai regulator for goodness sake and how is that possible? Dubai is the mony sloshing centre of the world after HK and Israel. Cryan runs the massive risk of being hit with more of those fines under his watch and losing more ratings thereby squeezing the business model dry of P&L. His target has to be AA status if the firm's going to make a sustainable return and that simply won't happen without better governance, controls and systems.

Fukushima Fricassee's picture

Branch of Government , they never jump they are either pushed or push you.

Tsunami Wave's picture

If you recall, they had some bankers that hung themselves... I wonder if it's related?

Lore's picture

Re:  "Mr. Broeksmit [found swinging from a rope in London] was not under suspicion of wrongdoing in any matter." 

I am an angel... See me fly...


WTFRLY's picture

Always interesting to see which is more likely on any given day, the markets to blow out, or if the war will go first.

mtndds's picture

Oh shit!!!  I didnt see that coming.  Where the phuck did that come from?  I hope there wont be more.  

RafterManFMJ's picture

Hey, were there any DB bankers mysteriously ending up dead? If so, it might add to the lulz, and be insightful, if you included their "suicides" in the timeline as well.

DirkDiggler11's picture

What is the German equivalent of Home Depot ? I would strongly reccomend all DB employees avoid the aisle that sells nail guns....

On a related note, no wonder DB chief economist Joey La-bone-in-ya just threw in the cards on economic growth. Watch out Joey, avoid nail guns and multiple story buildings !!!!

Buckaroo Banzai's picture

Dirk, it's called Max Bahr.

Except it went bankrupt July 2013.


booboo's picture

Debt Jubillee every 7 years, who wudda thunk, the only difference is that the tribe makes a killing betting against the losers and probably starts the snowball down hill with a little kick.

pods's picture

So they are going to lose ~20% of their market cap in 1 quarter?

I am sure they will still pass any and all stress tests. 


chunga's picture

That's a recipe for some damn fine bonuses for the top dawgs!

HungryPorkChop's picture

This is Bullish and fully expect the rigged casino stawk market to have a stellar week.  Just fran-tragic!!

jerry_theking_lawler's picture

Yes...because 'holding it together' quarter by quarter deserves lots of extra pay.

CheapBastard's picture

But, "it's the market price" for those execs they explain.

NoDebt's picture

Don't blow past this one too quick, TD.  All sorts of heinous shit can happen to real world companies and it doesn't matter.  When the banks start to buckle you DO have to be mindful of contagion.  Nothing has been fixed since 2008.  It could all go down again almost exactly the same as it did before.

DB having a hundred quadrillion on the books in derivatives positions means this is NOT the place the markets want to see unexpected and large weakness show up unannounced.

mademesmile's picture

Not only has nothing be fixed, they are bigger, more "failier" then ever.

"Failier" kinda like "assualt riflies" are "shootier"

RafterManFMJ's picture

Print up a few hundred "Failure-Free Zone" signs and post them all over the bank; failure will then stay away.

Ms. Erable's picture

If that doesn't work, I sure hope a lot of Douche Banksters die slow, horrible fiery deaths in the wreckage of their 'failure'.

Manthong's picture

..quick and painless would be OK with me as long as the result is assured..

You know, like launch the Benz 5 off the autobahn at 200 kph into a smoking mess in a nice green valley.


“DB having a hundred quadrillion on the books…”

…at least we are not talking about thousands of quadrillions…  that would start to get pretty far up there 

bigkahuna's picture

I wonder what the algos will do with this. It would be funny if they did a "bad is good" buy right into an institutional sell. There would be smoke clouds and blown capacitors all around.

We can only hope. The banksters and their algos need to be decommissioned.

Eternal Complainer's picture

'...wonder what the algos will do .."

Sell down gold and silver hard

Vylahkinnen's picture

The beautiful thing is. We have all the names. This is the internet age. If this goes down, expect an immediate response. :)

HoserF16's picture

I'm gonna go-out on a limb and say Hillary's "Crack" is Bigger.

SokPOTUS's picture

Damn you, Hoser. You just made me have a visual of that.

abyssinian's picture

So, this is bullish right? I can't tell anymore. Can anyone explain? if a German bank goes under, will that be good for economy around the world? thanks. 

bigkahuna's picture

In algo bad is good - aka the fed will QE - mode, this is bullish. When algos are in bad is bad mode, this is a no shit flash crash breaker trip event. 

wizteknet's picture

Means its getting very interesting, glencore now DB...