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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 SEES 3Q NET LOSS EUR 6.2 BLN
  • *DEUTSCHE BANK TO RECOMMEND DIVIDEND CUT OR POSSIBLE ELIMINATION

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 NotQuant.com

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.

MI-CB391_PECK_G_20140218184730

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.

article-2203390-1504DEE9000005DC-669_634x346

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.

deutsche_ceos2

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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Wed, 10/07/2015 - 16:24 | 6641438 bamawatson
bamawatson's picture

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

Wed, 10/07/2015 - 16:25 | 6641448 TeamDepends
TeamDepends's picture

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

Wed, 10/07/2015 - 16:30 | 6641500 alphamentalist
alphamentalist's picture

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

Wed, 10/07/2015 - 16:35 | 6641541 Hype Alert
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?

Wed, 10/07/2015 - 16:35 | 6641546 kliguy38
kliguy38's picture

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

Wed, 10/07/2015 - 16:44 | 6641600 FinalEvent
FinalEvent's picture

Jump fuckers!

Wed, 10/07/2015 - 16:56 | 6641665 Muh Raf
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.

Wed, 10/07/2015 - 17:16 | 6641772 coinhead
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!

https://localbitcoins.com

Wed, 10/07/2015 - 19:05 | 6642188 aint no fortuna...
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

Wed, 10/07/2015 - 20:29 | 6642430 Beatscape
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:

http://investmentwatchblog.com/global-financial-meltdown-coming-clear-si...

 

Wed, 10/07/2015 - 22:25 | 6642562 Richard Chesler
Richard Chesler's picture

Fuck them and their ilk cocksucking parasites!

Wed, 10/07/2015 - 22:29 | 6642755 cheka
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

Wed, 10/07/2015 - 22:36 | 6642777 Automatic Choke
Automatic Choke's picture

how do you say "nailgun" in German?

Thu, 10/08/2015 - 01:46 | 6643093 Manthong
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…….

 

Thu, 10/08/2015 - 07:59 | 6643261 fockewulf190
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:  https://www.youtube.com/watch?v=6Ksc2WJoXpg

 

Perhaps DB is the bank currently being saved?

Wed, 10/07/2015 - 23:08 | 6642868 KansasCrude
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.

Thu, 10/08/2015 - 01:49 | 6643096 Manthong
Manthong's picture

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

Wed, 10/07/2015 - 17:42 | 6641912 Mentaliusanything
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

Thu, 10/08/2015 - 01:51 | 6643097 Manthong
Manthong's picture

see above  : - )

Wed, 10/07/2015 - 18:05 | 6642007 slaughterer
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.  

Thu, 10/08/2015 - 07:00 | 6643338 Muh Raf
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.

Wed, 10/07/2015 - 18:52 | 6642149 Fukushima Fricassee
Fukushima Fricassee's picture

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

Wed, 10/07/2015 - 22:31 | 6642759 Tsunami Wave
Tsunami Wave's picture

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

 

http://www.zerohedge.com/news/2014-10-25/deutsche-bank-lawyer-and-former...

Thu, 10/08/2015 - 02:30 | 6643079 Lore
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...

WORKERS IN COMPLIANCE AND OVERSIGHT: BEWARE. PROTECT THE PAPER TRAIL. WATCH YOUR BACK. 

Wed, 10/07/2015 - 16:45 | 6641606 WTFRLY
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.

Wed, 10/07/2015 - 16:55 | 6641662 mtndds
mtndds's picture

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

Wed, 10/07/2015 - 17:38 | 6641874 RafterManFMJ
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.

Wed, 10/07/2015 - 17:51 | 6641956 DirkDiggler11
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 !!!!

Wed, 10/07/2015 - 18:12 | 6642025 Buckaroo Banzai
Buckaroo Banzai's picture

Dirk, it's called Max Bahr.

Except it went bankrupt July 2013.

Whoops!

Wed, 10/07/2015 - 21:39 | 6642628 booboo
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.

Thu, 10/08/2015 - 01:46 | 6643094 Kassandra
Kassandra's picture

Boo Hoo...

Wed, 10/07/2015 - 16:31 | 6641512 pods
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. 

pods

Wed, 10/07/2015 - 16:37 | 6641558 chunga
chunga's picture

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

Wed, 10/07/2015 - 18:16 | 6642037 HungryPorkChop
HungryPorkChop's picture

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

Wed, 10/07/2015 - 21:52 | 6642660 jerry_theking_lawler
jerry_theking_lawler's picture

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

Wed, 10/07/2015 - 22:19 | 6642726 CheapBastard
CheapBastard's picture

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

Wed, 10/07/2015 - 16:33 | 6641525 NoDebt
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.

Wed, 10/07/2015 - 16:47 | 6641610 mademesmile
mademesmile's picture

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

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

Wed, 10/07/2015 - 17:40 | 6641898 RafterManFMJ
RafterManFMJ's picture

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

Wed, 10/07/2015 - 19:11 | 6642213 Ms. Erable
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'.

Thu, 10/08/2015 - 07:42 | 6643410 Manthong
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 

Wed, 10/07/2015 - 16:52 | 6641645 bigkahuna
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.

Wed, 10/07/2015 - 18:21 | 6642048 Eternal Complainer
Eternal Complainer's picture

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

Sell down gold and silver hard

Wed, 10/07/2015 - 18:49 | 6642139 Vylahkinnen
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. :)

Wed, 10/07/2015 - 20:52 | 6642500 HoserF16
HoserF16's picture

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

Wed, 10/07/2015 - 22:45 | 6642807 SokPOTUS
SokPOTUS's picture

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

Wed, 10/07/2015 - 16:47 | 6641612 abyssinian
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. 

Wed, 10/07/2015 - 16:56 | 6641670 bigkahuna
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. 

Wed, 10/07/2015 - 17:44 | 6641920 wizteknet
wizteknet's picture

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

Wed, 10/07/2015 - 19:33 | 6642278 nosam
nosam's picture

Germany will not allow the bank to go under. Angela will print a few billions and hand it over. '

Unless they decide it's time to crash the system.

Wed, 10/07/2015 - 16:50 | 6641629 slaughterer
slaughterer's picture

DB is already trading at 2008 levels.    This is all already priced in.  The market knew it for a long time already.  

Wed, 10/07/2015 - 17:33 | 6641842 azusgm
azusgm's picture

Unwinds are never priced in. IIRC, LTCM found out the hard way that their paired trades became one-way bets and did not net out.

Wed, 10/07/2015 - 19:13 | 6642220 Kurpak
Kurpak's picture

The only thing priced into this "market" is hope

Thu, 10/08/2015 - 00:11 | 6642987 Bay of Pigs
Bay of Pigs's picture

Look below....you're wrong

Wed, 10/07/2015 - 17:30 | 6641822 doggings
Wed, 10/07/2015 - 22:02 | 6642674 ThirteenthFloor
ThirteenthFloor's picture

Oh Scheiße !

Wed, 10/07/2015 - 23:38 | 6642930 3Wishes
Wed, 10/07/2015 - 16:25 | 6641445 Bay of Pigs
Bay of Pigs's picture

Been a long time coming for Douche Bank...

Wed, 10/07/2015 - 16:47 | 6641615 Central Bankster
Central Bankster's picture

Im still pissed that I got my ass handed to me in 2011 buying DB puts.  fucking Draghi and the ECB bailing out all these fucking banksters from their crashing sovereign bond holdings.  I should've made an actual fortune.  God I hate these rigged fuckign markets so much.

Wed, 10/07/2015 - 17:04 | 6641715 Bernoulli
Bernoulli's picture

Don't be so angry. Just buy physical gold and silver and sit back and enjoy the show (don't forget popcorn and beer).

Wed, 10/07/2015 - 20:12 | 6642378 Not My Real Name
Not My Real Name's picture

True dat ... until the supply chains break.

Thu, 10/08/2015 - 07:56 | 6643430 Manthong
Manthong's picture

..but it was Bernanke's swaps that put it over the edge and set the stage for the LTRO 2 farce

that would be unwinding just about now but they will put another trick in the bag 

they always have another trick

Thu, 10/08/2015 - 10:28 | 6644156 Manthong
Manthong's picture

so many clueless out there

Wed, 10/07/2015 - 16:25 | 6641449 fockewulf190
fockewulf190's picture

70 trillion in derivatives over at DB.  Keep it up meine herren!

Wed, 10/07/2015 - 16:30 | 6641502 Rainman
Rainman's picture

that sure means a lot of counterparties *cough* global banks

Wed, 10/07/2015 - 16:32 | 6641520 pods
pods's picture

All insured by AIG, no worries.

pods

Wed, 10/07/2015 - 16:38 | 6641567 Tom Servo
Tom Servo's picture

it's a "net zero"

Wed, 10/07/2015 - 17:24 | 6641800 Bernoulli
Bernoulli's picture

It's all out there for everyone to read. this is not DB's fault, but the regulators, the rating agencies, the auditors, etc.

Just look at this paragraph from DB's 2013 annual report:

"The potential future exposure measure which we use is generally given by a time profile of simulated positive
market values of each counterparty’s derivatives portfolio, for which netting and collateralization are considered.
For limit monitoring we employ the 95th quantile of the resulting distribution of market values, internally referred
to as potential future exposure (“PFE”). The average exposure profiles generated by the same calculation
process are used to derive the so-called average expected exposure (“AEE”) measure, which we use to reflect
expected future replacement costs within our credit risk economic capital, and the expected positive exposure
(“EPE”) measure driving our regulatory capital requirements. While AEE and EPE are generally calculated with
respect to a time horizon of one year, the PFE is measured over the entire lifetime of a transaction or netting
set for uncollateralized portfolios and over an appropriate unwind period for collateralized portfolios, respectively.
We also employ the aforementioned calculation process to derive stressed exposure results for input into
our credit portfolio stress testing.
The PFE profile of each counterparty is compared daily to a PFE limit profile set by the responsible credit officer.
PFE limits are integral part of the overall counterparty credit exposure management in line with other limit
types. Breaches of PFE limits at any one profile time point are highlighted for action within our credit risk management
process. The EPE is directly used in the customer level calculation of the IRBA regulatory capital
under the so-called internal model method (“IMM”), whereas AEE feeds as a loan equivalent into the Group’s
credit portfolio model where it is combined with all other exposure to a counterparty within the respective simulation
and allocation process (see Chapter “Monitoring Credit Risk”)".

Let's translate this sentence by sentence to Joe-Sixpack language (sorry, I'm not a banker, so please correct me if you find errors or can propose a better translation):

- We have risks. Tons of them. You can see it in the above table on page 189. In case you got the digits wrong, we have 54 trillion 652 billion EUR of such risks.
- We cannot quantify those risks and have no clue of our exposure.
- But the number 54 trillion is definitely too high to explain to anybody. This is why we use a certain "in-house" rigging for coming up with a number for the "real" exposure (every bank uses their own processes)
- Most of the times ("generally"), we fill our simulation tools with some random bullshit numbers, having to estimate OTHER BANKS ("counterparties") portfolio risks (of course we don't have a fucking clue what their risks are, but same on our side, so we might just as well estimate theirs as well)
- These numbers are mostly so fucking gigantic that we have to use regulator backed manipulation methods ("netting" and "collateralization") to reduce them by up to two orders of magnitude
- All these fudged numbers let's just call "market values", although it is mostly OTC bilateral dodgy agreements and nobody else has a fucking clue how we came up with the "price"
- We aggregate the "market values" into bell shaped "normal distribution curves", although we definitely shouldn't be doing this because many of these deals are interdependent and are certainly not the same nature/type of data necessary to make the necessary mathematical assumptions and they MOST CERTAINLY don't blow up with the same probability. But we have to use the normal distribution hypothesis, otherwise the handling of so many different types of crazy data with no history wouldn't even be possible. We know the math is wrong, but there are no other tools.
- Once we calculated our approximate bell curve shape, we pretend to be scientific by throwing around certain levels of confidence in sigma levels or percentiles. We learned this in our CFA curriculum. In this specific case, we chose to use 95 percentile for no specific reason. Sounds like we're being reasonable, no? 95%. Come on!
- Out of this, we created an internal abbreviation "PFE" for our potential future exposure (the abbreviation is to be used as often as possible when talking to senior management!). This gives the impression that we are on top of things when we report the development of our toxic portfolios.
- Since our top management is always super busy on their I-Phones, they told us they don't have the time to go through all the hundreds of different sheets of PFE reporting for each counterparty ("Do you have any idea how fucking busy I am?"). They told us to come up with something more simple, like a traffic light.
- This is why we introduced the measure "average expected exposure" (AEE), which functions like an indicator and is simplified enough to not contain any more useful information, let alone the possibility to use it as basis for decision making.
- We fudge this AEE long enough to be able to show that with our allocated credit risk capital we will definitely be able to cover the invented number of potential losses. This we can use in communication with the politicians and the public to tell them how safe our bank is.
- Also, this fudged number AEE is the basis for yet another created measure that we named "expected positive exposure" (EPE), which is including the word "positive" to make sure everybody gets that the losses can simply never be larger than the capital we claim to set aside and that we are actually doing something good to mankind
- What is also quite important, the EPE we use to fuck over the completely help- & clueless regulators and tell them how much regulatory capital we have to set aside based on our own calculation that nobody else can understand or contest. And then we explain them, why this is largely enough. We are well capitalized and safe. According to our OWN inhouse simulations.
- Most of the times, we calculate AEE and EPE for one year only, not showing the complete picture. Doing so helps us manipulate at a later stage, should there be an unexpected shortfall of bits and bytes somewhere (= available regulatory capital) or some legislative changes of equity requirements
- It would look even more credible, if we could somehow come up with an exposure number for something more long-term. This is why we simulate the PFE over the entire lifetime. However, we managed to include a further manipulation possibility for collateralized portfolios, simply arguing that there is not one single "lifetime" but most certainly we are responsibly chosing an "appropriate" time frame which is in our interest.
- Basically, we just have to make sure almost everything that is big enough to matter will be collateralized, then we can continue the numbers fudging also on that end.
- As you have probably already expected, we use the same internal manipulation, rigging and glass-balling process to pretend we know what will happen with our assets in case of international financial meltdown, an operation we call "credit portfolio stress testing"
- To pretend all our risks are managed very resposibly, we have decided to claim we have a "rigorous" process of looking at those completely meaningless and made up numbers on other banks exposures on a daily basis by a simple IT-comparison
- For that, the responsible "credit officer" (sounds very official and serious) made up a random number and declares it as "limit" (mostly based on looking at what happened in the past or by just coming up with a number that is far enough away from the actual number so that the limit is not breached. In case the limit is breached often, the limit is just changed.
- These limits really do make sense though, we act responsibly and there is no manipulation whatsoever. Really. You just have to believe us. The whole thing fits into a bigger picture. Of course you can't understand, it is complicated, but we are in control of everything. Stop asking yourself all those questions. That is not necessary. We are safe. It's our top priority.
- In the unlikely case any such a limit at any point in time (we're really covering it all, 24/7!) is breached, and red flag will be coming up and we might do something (mostly just acknowledging the "alarm" and modify the limits)
- The EPE we use directly - without another intermediate step - to rip off our customers, by throwing around even more abbreviations, models and methods. Call the whole thing internal model method (IMM)
- Not only the EBE feeds into this, but also AEE, however as a loan equivalent in addition to all other counterparty risk simulation and allocation BS.

There you go.

We are safe.

Dankeschön.

Wed, 10/07/2015 - 17:55 | 6641972 SimplePrinciple
SimplePrinciple's picture

Masterful!  I'm just glad we over here have FDIC insurance so we don't have to sweat these details.

Wed, 10/07/2015 - 22:40 | 6642787 Automatic Choke
Automatic Choke's picture

thanks for the translation, Bernoulli.  

like most bank leveraging, it really does work great....(until it doesn't).

 

 

Wed, 10/07/2015 - 17:55 | 6641974 bbq on whitehou...
bbq on whitehouse lawn's picture

We use math to fix our stupid, we dont see stupid so it cant hurt us.
Oh and your money its ok do not worry.

Wed, 10/07/2015 - 18:02 | 6641997 Bernoulli
Bernoulli's picture

Could have saved a lot of time if I could summarize like you do.

Wed, 10/07/2015 - 21:47 | 6642651 herkomilchen
herkomilchen's picture

I nominate this as summary of the year.

Wed, 10/07/2015 - 19:41 | 6642307 fockewulf190
fockewulf190's picture

Banken macht frei.

Wed, 10/07/2015 - 22:27 | 6642749 CheapBastard
CheapBastard's picture

I thank Bernoulli for his kind and patient explanation.

It means we are going to need lots more rope to include all those thoughtful analysts, lawyers, auditors, bankers and regulators who were a party to this total investor-fucking methology.

 

However, no one can accuse me of being unfair; everyone gets a fair trial before we hang them.

 

 

Wed, 10/07/2015 - 17:01 | 6641696 yogibear
yogibear's picture

"70 trillion in derivatives over at DB"

I smell CB printing to bailout their bankster buddies. Whatever is required. 

Next time these banks should increase there bets as you have central banks keep on being bailed out.

Wed, 10/07/2015 - 18:56 | 6642166 Wile-E-Coyote
Wile-E-Coyote's picture

Put Corzine in charge!

Wed, 10/07/2015 - 16:26 | 6641458 KnuckleDragger-X
KnuckleDragger-X's picture

"May cut dividend", this cannot be allowed.....

Wed, 10/07/2015 - 17:18 | 6641786 playdoh
playdoh's picture

Lay off 25% staff or cut dividend, hmm that's an easy one

Wed, 10/07/2015 - 18:33 | 6642085 stormsailor
stormsailor's picture

oh they can do both and probably will.

Wed, 10/07/2015 - 16:26 | 6641459 CarpetShag
CarpetShag's picture

That should fuck up the DAX but good after a full 2EUR drop /s

Wed, 10/07/2015 - 22:42 | 6642795 Automatic Choke
Automatic Choke's picture

yup, but if you are going to fuck up the DAX, best to do it when you can blame VW and the EPA.....

Wed, 10/07/2015 - 16:27 | 6641470 lehmen_sisters
lehmen_sisters's picture

Isn't Douche Bank the fuckers loaded to the brim with derivs?

 

Wed, 10/07/2015 - 16:30 | 6641501 CarpetShag
CarpetShag's picture

yes, 55 trillion EUR nominal but they all net out to a few hundred thou, no worries

Wed, 10/07/2015 - 16:35 | 6641542 lehmen_sisters
lehmen_sisters's picture

It'll buff out. Posted before looking at the 55 EUR graph, i remember it being in the 70+ trillion , seems legit.

Wed, 10/07/2015 - 17:16 | 6641770 Never One Roach
Never One Roach's picture

Their 2 million angry aggressive refugees will boost their GDP so all will be well is what they are thinking. Add in moar war and moar accounting adjustments for Global Warming hoaxism and it will be fine.

 

Just fine. Hans and Franz will still get their Fat Bonus for Christmas.

 

Wed, 10/07/2015 - 19:28 | 6642263 azusgm
azusgm's picture

Maybe the European nations will regain their sovereignty.

Looking forward to Nigel Farage's comments.

Wed, 10/07/2015 - 16:27 | 6641471 Kaiser Sousa
Kaiser Sousa's picture

die mother fuckers.....DIE!

Wed, 10/07/2015 - 16:41 | 6641583 Bay of Pigs
Bay of Pigs's picture

Hey Kaiser, seek the wise old owl posted an old ZH article in the chat room last night. I noticed you were posting way back then (with Marla and Cheeky Bastard too). Good old Fight Club days at ZH.

http://www.zerohedge.com/article/everything-you-ever-wanted-know-about-i...

Wed, 10/07/2015 - 17:17 | 6641780 Bring the Gold
Bring the Gold's picture

ZH OG's. Man those were the days. Back when the comment section was routinely better than the articles.

Wed, 10/07/2015 - 18:34 | 6642089 Mentaliusanything
Mentaliusanything's picture

Agreed.. Friday nights with Marla were great but having your swingers removed by her was not. Angry Bitch

Wed, 10/07/2015 - 19:55 | 6642343 Calmyourself
Calmyourself's picture

The couple times I took her on, I pulled the the big boy pants up good and tight... Smaller target..

Wed, 10/07/2015 - 21:21 | 6642577 Almost Solvent
Almost Solvent's picture

I'm glad Tyler never replaced Marla after their split

Wed, 10/07/2015 - 17:21 | 6641792 playdoh
playdoh's picture

tbtf

Wed, 10/07/2015 - 22:34 | 6642771 Tsunami Wave
Tsunami Wave's picture

2 deutsche bankers (as far as we know) killed themselves previously..

http://www.zerohedge.com/news/2014-10-25/deutsche-bank-lawyer-and-former...

Wed, 10/07/2015 - 16:27 | 6641473 stant
stant's picture

Maybe they can use some branches to house refugees

Wed, 10/07/2015 - 16:41 | 6641584 CarpetShag
CarpetShag's picture

not enough toilets

Wed, 10/07/2015 - 16:29 | 6641489 CarpetShag
CarpetShag's picture

"The first crack" - wasn't that Eve's pussy?

Wed, 10/07/2015 - 16:48 | 6641623 NRGIsFree
NRGIsFree's picture

I'd hit that...

Wed, 10/07/2015 - 16:29 | 6641490 venturen
venturen's picture

All banks have FN negative goodwill....they are souless money grubbers

Wed, 10/07/2015 - 16:30 | 6641497 trader1
trader1's picture

22 days til D(B)-Day

Wed, 10/07/2015 - 16:30 | 6641498 LawsofPhysics
LawsofPhysics's picture

Short term, this should be good for another +100 points on the DOW.

No spoon motherfuckers.

Wed, 10/07/2015 - 16:30 | 6641505 venturen
venturen's picture

But of course this is awesome news...market will jump tomorrow! Losing money is the new profit! 

Wed, 10/07/2015 - 16:39 | 6641571 Bell's 2 hearted
Bell's 2 hearted's picture

i can already feel the pain in store for those short DB

 

mega squeeze as schauble or draghi sez something dumb (ie: taxpayer loot to bailout)

Wed, 10/07/2015 - 16:43 | 6641594 trulz4lulz
trulz4lulz's picture

Losing!? No my dear human, they are taking a loss by betting that they will make more at a later date! All is well!

Wed, 10/07/2015 - 16:31 | 6641510 Bernoulli
Bernoulli's picture

NOW THAT'S what I would call "news that matters"...

Wed, 10/07/2015 - 16:32 | 6641521 Bell's 2 hearted
Bell's 2 hearted's picture

in a just world jim reid would get axed

Wed, 10/07/2015 - 16:35 | 6641537 walküre
walküre's picture

I pray Germany goes BK before the mooslim terrorist migrants can fuck up the country for good.

Germany is fucked either way and I say this with a heavy heart.

Merkel needs to be exiled. Napoleon was exiled 2x for far less damage than this woman did to my country!

Wed, 10/07/2015 - 16:40 | 6641575 CarpetShag
CarpetShag's picture

Murkle is being remote controlled, there is no other explanation.

Wed, 10/07/2015 - 17:11 | 6641745 bigkahuna
bigkahuna's picture

From a far, I get the sense that the Germans are getting tired of being fucked with. We all know what happened the last time the Germans got tired of being fucked with...

Wed, 10/07/2015 - 16:37 | 6641556 ghostzapper
ghostzapper's picture

Got in as I posted here but a very modest position.  Piece of dogshit just wouldn't rally so dipped in high 27's only to see the rally this week and added a tad more above 28.  Who do I buy from if it's at $0.00?

Wed, 10/07/2015 - 16:46 | 6641607 playdoh
playdoh's picture

Tis but just a flesh wound.

After all, they've been stress-tested :)

Wed, 10/07/2015 - 17:31 | 6641827 ghostzapper
ghostzapper's picture

Ya - just a little bruise.

Sarcasm aside I'm well aware there could even be a pop after this release tonight and maybe even tomorrow.  the chart was in my view very clearly suggesting the most likely projection was indeed a very sharp move lower but I know the Banksters will do everything they can to deceive everyone and jack it higher to entice suckers.

Let's face it - they are announcing a possible dividend elimination and whatever it is a $6B loss.  To me that means the truth is a LOT worse than that.  This is just a public disclosure to attempt to cover themselves as if they don't already face a zillion lawsuits.  I've also considered the same thing one must always consider which is intervention and manipulation.  The ECB in theory could announce something but would the market even take that bait and believe it?  Obozo being manhandled by Russia and China in Syria to me implies something about the overall power of the Bankster Cabal dwindling.  The Banksters may even want the implosion to happen and they need a pinata and little piggie to slaughter (DB and Glencore).  Taking it all into account we may finally be at the point many have been expecting where a PD finally implodes.  Spider is hitting some nice levels as well in terms of TA to ignite a sharp reversal.  the big signals were already sent it's just that right here and right now we still see most people intoxicated, mesmerized, and Pisani'ed.   

Wed, 10/07/2015 - 17:41 | 6641902 Big_bear
Big_bear's picture

$8B loss .. but don't worry, just as in 2008, its kitchen sink quarter and all the losses have been taken .. so only way is up from here ..

Wed, 10/07/2015 - 21:58 | 6642671 jerry_theking_lawler
jerry_theking_lawler's picture

Whoever you want to...because they will ALL be selling.

Wed, 10/07/2015 - 16:40 | 6641578 Soul Glow
Soul Glow's picture

A div cut is the least of shareholder worries.

Wed, 10/07/2015 - 16:42 | 6641589 mademesmile
mademesmile's picture

An inparment of goodwill is about 7 Billion dollars?

Wow.

Didn't realize goodwill was that expensive.

Wed, 10/07/2015 - 22:44 | 6642803 Automatic Choke
Automatic Choke's picture

tis because of the '70s Black Sabbath Tour t-shirt that I donated to Goodwill last week.....

Wed, 10/07/2015 - 16:44 | 6641599 kahunabear
kahunabear's picture

So, I read this thinking there must be major after hours tankage. Nope. Unphased.

Thu, 10/08/2015 - 03:29 | 6643182 Automatic Choke
Automatic Choke's picture

right.  midnight pacific, eminis down ~110.  meh. 

Wed, 10/07/2015 - 16:50 | 6641619 MrTerry
MrTerry's picture

ALERT NEWS NOW    a friend at Deutsche Bank was drunk at a party and he spilled all beans,  saying that all the higher ups at the bank  are in  the panic mode because  Deutsche Bank will  need to start bail ins , the most they can put it off is to march before the shit hits the fan.  So if you have any money in the bank you need to get it out NOW !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

Wed, 10/07/2015 - 17:59 | 6641982 Bernoulli
Bernoulli's picture

What? They are going to bail in some of the Trillions of Euros that the clients have saved on their DB bank accounts?

That can't be. DB is a safe bank (see above).

But nice try to start a bank run with a post on Zero Hedge.

Zeee Tschörmenn Seee-Cred Sörviss vil conteggt ju soon wiss some quess-tschns!

 

 

Wed, 10/07/2015 - 19:46 | 6642324 Stoonod Nicknud
Stoonod Nicknud's picture

Was this party a Mitzvah?

Did they play pin-the-tail on the donkey?

Wed, 10/07/2015 - 16:48 | 6641620 Grandad Grumps
Grandad Grumps's picture

OK, gotta bite, please excuse me.

Humphrey: "Anshu!"
Fitschen: "Gesundheit!"

Wed, 10/07/2015 - 16:49 | 6641625 yogibear
yogibear's picture

This time the Federal Reserve more than doubles up on printing/QE/stimulus.

It's coming. Whatever the QE-max is called.

Wed, 10/07/2015 - 16:50 | 6641635 bigrooster
bigrooster's picture

I bought 1000 tvix at the close so I hope this all blows up tomorrow.

Wed, 10/07/2015 - 16:54 | 6641648 Seb
Seb's picture

I just realised what Deutsche Bank's logo represents: a falling domino.

Wed, 10/07/2015 - 16:53 | 6641651 malek
malek's picture

 fractional-reserve banks — who are by definition bankrupt at all times

I believe there is an important distinction which is often obscured on purpose by status-quo-preservers:

Fractional reserve banks are potentially bankrupt at all times because if a run occurs -i.e. assets cannot be sold orderly at market prices- there are bankrupt.

Being bankrupt right now, i.e. the liabilities are larger than the assets sold at current orderly market prices, is on a completely different scale!

Wed, 10/07/2015 - 16:58 | 6641673 Grandad Grumps
Grandad Grumps's picture

... and they lend themselves money using collateral that they do not own.

What a racket.

Wed, 10/07/2015 - 16:54 | 6641656 Bernoulli
Bernoulli's picture

It's all conspiracy against Germany

www.denk-bubbles.com/angela

Wed, 10/07/2015 - 17:02 | 6641703 malek
malek's picture

You need to come up with a more striking cause theory than Angela wants to normalize relations with Putin

Wed, 10/07/2015 - 17:42 | 6641856 Bernoulli
Bernoulli's picture

You don't think that's enough?

Moving Germany and the EU direction East instead of West? Taking away the concept of the enemy from the NATO? Effectively helping to bury the Petrodollar?

Hmmm... ok. Let me think of something else then.

Wed, 10/07/2015 - 20:15 | 6642388 malek
malek's picture

All that Angela can conjure? LOL

Wed, 10/07/2015 - 17:00 | 6641692 CHX
CHX's picture

...and we are talking about the 55 T that we know of... 

Wed, 10/07/2015 - 17:06 | 6641721 yogibear
yogibear's picture

So it's 55T or 100T these crooked CBsters just print more an put it off-balancesheet.

It's like accounting and books no longer matter, The Fed/CBs threw out accounting long ago.

Wed, 10/07/2015 - 17:09 | 6641738 SmittyinLA
SmittyinLA's picture

Deutsche bank Socialist exposure 

  • US sub-prime
  • US Auto loans 
  • US student laons 
  • US consumer loans 
  • US home equity laons 
  • Ukraine liabilities (both sides) 
  • US municipal bond liabilities-all cities like Bell CA and Detroit 
  • They're probably buying into Iran and Syrian ISIS too. 
  • Green energy legacy liabilities 
  • 1 million more Muslims 

DB gonna die soon, they are the cow that needs to be sacrificed. 

Another utter disappointment for the master race.

Wed, 10/07/2015 - 17:10 | 6641741 SmittyinLA
SmittyinLA's picture

So who sold insurance on DB paper? 

Wed, 10/07/2015 - 17:21 | 6641779 trader1
trader1's picture

Allianz? Generali? AXA?

or was it another greedy American insurance company???

 

Wed, 10/07/2015 - 17:12 | 6641753 bankonzhongguo
bankonzhongguo's picture

It's clear the longer this "market-freude" goes on the fewer players there are.

One by one they will cannibalize each other, transferring risk to former allies - only to create more chaos, fewer parties, no-trust with nobody able to carry the next fake trade.

I remember this game from a long time ago.

It's called musical chairs.

Wed, 10/07/2015 - 17:15 | 6641769 Youri Carma
Youri Carma's picture

Ihaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa!!!!!!!!!! https://youtu.be/JlSQAZEp3PA?t=28s

Wed, 10/07/2015 - 17:17 | 6641775 unplugged
unplugged's picture

massive?  6.2 billion?  don't they have ~100 trillion in derivatives exposure? 

chump change !!!

Wed, 10/07/2015 - 17:21 | 6641791 shankster
shankster's picture

Pass around the cigars and champange...good job boys and girls!

Wed, 10/07/2015 - 17:22 | 6641795 Wahooo
Wahooo's picture

Aaaand...

It's ALL...

Fucking...

Gone.......

Wed, 10/07/2015 - 17:30 | 6641810 Crocodile
Crocodile's picture
Deutsche Bank goes down to send a message to the Germans who want to turn east; just ask VWThey will make a great scape-goat for the Central Planners.  Germans are being set-up.  October 17th, on or around, will be a time that the world takes notice.
Wed, 10/07/2015 - 17:45 | 6641934 Bernoulli
Bernoulli's picture

Couldn't agree more.

PS: Did you just visit my website? ;-)

Thu, 10/08/2015 - 06:59 | 6643336 Perfecthedge
Perfecthedge's picture

Why is everybody mentioning October 17th? Please enlighten the unfortunate ignorants, like me. :)

I remember people mentioning the supposed dates from that nasty The Economist magazine cover (I think around November), but why October??? Thanks.

Wed, 10/07/2015 - 17:28 | 6641812 Bill of Rights
Bill of Rights's picture

Whew! It's a good thing were not talking about real money here...

Do NOT follow this link or you will be banned from the site!