DAX Plunges To 1 Year Lows As Deutsche Bank CoCos Crash, Italian Bank Stocks Slide

Tyler Durden's picture




 

The collapse of Deutsche Bank continues to not just accelerate but to contagiously spread...

Deutsche Bank's CDS continues to push higher...smashing European bank risk to its highest since 2013...

 

And now Deutsche Bank's Contigent Capital securities are crashing - these are among the lowest securities on DB's capital structure and are screaming that problems loom.

In English - CoCo bonds are contingent convertible bonds, and are converted into equity first in case of a bail-in.

 

Dragging the entire German market down - DAX down to 1-year lows...

 

As Bloomberg reports,

This focus on potential credit risk at some of the biggest banks is a shift from recent years, when they seemed resilient from a credit standpoint even as analysts raised doubts about their future profitability. After all, regulations that prompted them to cut costs and reduce risk-taking would probably make them better able to meet their debt obligations, at least in theory.

 

But that theory only goes so far, and not enough apparently to justify buying subordinated financial debt that could get wiped out in a worst-case scenario. Investors seem to be rapidly selling lower-ranked bank securities, particularly notes tied to European firms with significant exposure to commodities companies and borrowers in China.

 

Investors really don’t have a sense of just how much pain banks will feel from souring energy prices and the global growth slowdown. Many are not waiting around to find out.

It's not just Germany though: moments ago Italian bank stocks slid to intraday lows following news that the government's banking industry decree was reported to be postponed to next week, pushing BTP futures down 66 ticks at 138.79, lingering near session low of 138.55.

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Thu, 02/04/2016 - 10:33 | 7139378 Dr. Engali
Dr. Engali's picture

You're gonna need a bigger printer Mario.

Thu, 02/04/2016 - 10:47 | 7139434 thesonandheir
thesonandheir's picture

Moar QE to purchase these dodgy NPL's and the problem goes away no?

Thu, 02/04/2016 - 10:51 | 7139457 Jtrillian
Jtrillian's picture

DB is the goblin king.

https://youtu.be/JOX_oeikDJY?t=24s

Thu, 02/04/2016 - 11:08 | 7139534 max2205
max2205's picture

yes

Thu, 02/04/2016 - 11:17 | 7139583 nink
Thu, 02/04/2016 - 11:23 | 7139604 Father Thyme
Father Thyme's picture

CoCo isn't so tasty when it's not hot.

Thu, 02/04/2016 - 11:29 | 7139639 Ghost of PartysOver
Ghost of PartysOver's picture

So Germany now has a political problem and a financial problem.  And Germany is the linchpin of the European Union?  Well that just sends boatloads of optimism spewing out the butt doesn't it.

Thu, 02/04/2016 - 11:42 | 7139712 Divided States ...
Divided States of America's picture

Tyler, there is no contagion over here. US and Canadian banks all up nicely today.

Which makes me wonder, are they trying to scare people out of the European banks to shift their assets over to the US banks which makes them more capitalized??? Looks like Europe is getting shafted again..first with immigrants running amok, then capital controls..and soon to be bank runs.

Thu, 02/04/2016 - 12:10 | 7139859 TEOTWAIKI
TEOTWAIKI's picture

Fast forward 5 years-Headline News:

German migrants continue to pour into Eastern Europe, Turkey, Africa and the Middle East; seeking refugee status to escape the worn-torn German Republic.

Thu, 02/04/2016 - 11:57 | 7139795 Silver Bug
Silver Bug's picture

The great crash is coming at this point. There is no stopping it. Too much funny money has been printed and the western system is simply too sick. Good luck central bansters.

 

http://jimrickards.blogspot.ca/2016/02/the-case-for-gold-as-fed-tightens...

Thu, 02/04/2016 - 11:12 | 7139556 Tall Tom
Tall Tom's picture

Remember. It is not panic if you are first.

 

Collapse, baby, colapse.

 

This is getting a lot better fast.

 

Raise those rates Yellen. Step on the accelerator. Step on it??? No. I am wrong. STOMP ON THAT PEDAL. PEDAL TO THE METAL  BITCHEZ.

Thu, 02/04/2016 - 11:37 | 7139701 BeaverFever
BeaverFever's picture

CoCo's crashing? CoCo's low??? I like mine firm and pointing up. Why don't they must import some youngins from the Ukraine? Dang foreigners.

Thu, 02/04/2016 - 12:07 | 7139845 Tall Tom
Tall Tom's picture

One thing that tastes bad is cold German CoCo.

 

Damn.

 

Now I want to go to the German Deli next door...

 

But Krystal has not opened her store, yet.

 

And she does not serve cocoa. But that might be a good idea for her.

 

She may want to start doing this to draw in more customers.

 

She is a decent, hard working, elderly German woman. She has a damned good work ethic.

 

Damn. At these times I like Zerohedge. This place gives me ideas. So I will suggest that to her.

Thu, 02/04/2016 - 10:34 | 7139380 LawsofPhysics
LawsofPhysics's picture

Sure, sure, wake me when these "markets" hit zero...

 

Then, you might be close to accurate valuations...

Thu, 02/04/2016 - 11:12 | 7139553 Haager
Haager's picture

Accurate valuation would require them to repay the people, with markets in bottomless negative territory, I assume.

Thu, 02/04/2016 - 11:25 | 7139611 LawsofPhysics
LawsofPhysics's picture

that which cannot be sustained, won't be, period.  The question is do you want to live in an honest, open, and just society and accept the fact that there are good time and bad or do you want to continue down this path of cronyism/fascism...

The "event horizan" will be passed at some point, and then it's blood pudding for everyone...

again, same as it ever was...

Thu, 02/04/2016 - 10:35 | 7139387 Lady Jessica
Lady Jessica's picture

"We've reached a permanently plummetting asymptote." - Ghost of Irving Fisher

Thu, 02/04/2016 - 10:37 | 7139396 asteroids
asteroids's picture

The DAX should be around 5000. Stupid banksters are going to pay a huge price.

Thu, 02/04/2016 - 11:13 | 7139564 Rip van Wrinkle
Rip van Wrinkle's picture

Bankers' pay a price? Were you born yesterday?

Thu, 02/04/2016 - 11:15 | 7139575 Tall Tom
Tall Tom's picture

Nope.

 

All of us are going to pay a huge price.

 

The Bankers always win.

 

They will be least affected...until the cities burn.

Thu, 02/04/2016 - 10:39 | 7139407 Kiwi Pete
Kiwi Pete's picture

What does COCo stand for? Can't those traders spell?

Thu, 02/04/2016 - 10:45 | 7139425 Arnold
Arnold's picture

"n English - CoCo bonds are contingent convertible bonds, and are converted into equity first in case of a bail-in."

Thu, 02/04/2016 - 11:20 | 7139584 Tall Tom
Tall Tom's picture

Yes traders can spell you fucking moron.

 

COntingent cOnvertible bonds

 

 

CoCo.

Thu, 02/04/2016 - 10:47 | 7139429 Dr. Engali
Dr. Engali's picture

"In English - CoCo bonds are contingent convertible bonds, and are converted into equity first in case of a bail-in"


Thu, 02/04/2016 - 10:50 | 7139447 Arnold
Arnold's picture

It's not just  the great minds that think alike.

Thu, 02/04/2016 - 10:53 | 7139465 Dr. Engali
Dr. Engali's picture

Another one on this thread who can't read. Had to go to investopedia for the answer. WTF? 

Thu, 02/04/2016 - 12:39 | 7139996 PTR
PTR's picture

So, when paper A with an executable date becomes near- or totally worthless, they convert to paper B, which can also become totally worthless, but have no [defined] expiration date.  

 

"Fool, it was nice knowing you." -Money

Thu, 02/04/2016 - 10:48 | 7139443 Iam_Silverman
Iam_Silverman's picture

"What does COCo stand for? "

Exact same question I had.  But, my guess would be that since they appear to have either 6% or 8% yield, they are obviously some type of bond that is long-term and probably rated as HYG stuff (junk).

 

ETA - CoCo is a contingency bond that will convert into stock (equities) as a predetermined (strike) price.  Thank you Investopedia!

And, using their excellent explanation, I can see the concern.  If the strike price never hits, then they actually have to pay interest rather than just printing stock to close out the bond position.  On the bright side though, the potential for the stock conversion still doesn't count against them as far as share dilution, so they can keep a higher EPS on the books.

Thu, 02/04/2016 - 10:54 | 7139468 Dr. Engali
Dr. Engali's picture

You do know that Tyler provided the explanation for what CoCos are in this article right?  

Thu, 02/04/2016 - 11:09 | 7139540 Haager
Haager's picture

That would require that people read more than just the headline.

Thu, 02/04/2016 - 11:22 | 7139596 Winston Churchill
Winston Churchill's picture

Some don't even look at the pictures and those sqiggly thingamys.

Thu, 02/04/2016 - 11:24 | 7139610 Tall Tom
Tall Tom's picture

And some do not even read the comment before responding to it.

Thu, 02/04/2016 - 11:34 | 7139676 Tall Tom
Tall Tom's picture

You can downarrow this all that you want. I do not care.

 

You are lame as you did not COMPREHEND HIS POST.

 

Reading Comprehension, or the lack thereof, is your responsibility. Without comprehending that which was read, it is as if one did not read it...AT ALL.

 

He was criticizing the spelling of the acronym, COCO and FAILED to figure out where it originated.

 

So fuck the junk.

Thu, 02/04/2016 - 11:27 | 7139602 Tall Tom
Tall Tom's picture

Good Doctor,

 

You do know that he was criticizing the spelling of the acronym, right?

 

He wrote, "Can't traders spell?"

Thu, 02/04/2016 - 11:35 | 7139627 Dr. Engali
Dr. Engali's picture

How exactly was he criticizing the grammar?  There is no grammar to criticize with his question. He was trying to be funny when he asked "can't traders spell?".  If you look you will see we had two people on this thread who didn't bother to read the article and asked the same question. Heck, one of them went through the trouble of going to investopedia to find the answer Tyler provided. 

Thu, 02/04/2016 - 11:36 | 7139692 Tall Tom
Tall Tom's picture

Good doctor.

 

While you were thinking of your response I had editted my post to be accurate.

 

Read it again as it is now accurate.

Thu, 02/04/2016 - 13:02 | 7140097 Iam_Silverman
Iam_Silverman's picture

"You do know that Tyler provided the explanation for what CoCos are in this article right? "

[In English - CoCo bonds are contingent convertible bonds, and are converted into equity first in case of a bail-in.]

Yes, a kind of half-assed definition.  Sometimes you have to wade through the snark in "Tyler" posts and try to determine the real gist of the statement.

For those of us unaware that the bonds converted ON A SHARE STRIKE PRICE (instead of being triggered by a bail-in, as alluded to above) there is s better understanding of exactly HOW this can affect the issuer.  I can assure you that my reading comprehension skills are probably on par with about the others that read the article.  I just wanted to know the trigger.  And, as it turns out, bail-ins probably aren't listed as a condition.

 

 

Would you buy a CoCo if it converted to equities on a LOWERING stock price?  No?  I wouldn't either.  Would you buy one that could convert on a RISING stock price?  Maybe, but definitely more likely.  A bank on the verge of a bail-in is most likely to have a stock price going in which direction?  Right, lower.  SO how does this trigger in the case of a bail-in again?

Thu, 02/04/2016 - 12:59 | 7140083 Jim in MN
Jim in MN's picture

She stands for most sambas and all cha chas.  But tends to sit for foxtrots, don't ask me why.

Thu, 02/04/2016 - 10:48 | 7139444 Bangin7GramRocks
Bangin7GramRocks's picture

Whip out yo titties Frau Merkel. The banks need some milk.

Thu, 02/04/2016 - 10:55 | 7139478 Brit_Abroad
Brit_Abroad's picture

Roll up Ladies and Gentlemen, come on roll up.

There is no need to push and shove, plenty of windows and roof space for everyone.

That's it you are all special snowflakes, you can all fly........NOW JUMP YOU FUCKS !!! JUMP !!!!

Thu, 02/04/2016 - 11:00 | 7139494 AbbeBrel
AbbeBrel's picture

For more info on the crazy bail-in, umm CoCo bonds, see Wolf's most excellent scribblings on the topic:

http://wolfstreet.com/2016/02/01/what-deutsche-banks-plunging-coco-bonds...

Thu, 02/04/2016 - 11:02 | 7139505 The Real Tony
The Real Tony's picture

The DAX is still the most overvalued index in the entire world followed by the American stock indexes.

Thu, 02/04/2016 - 11:04 | 7139513 buzzsaw99
buzzsaw99's picture

who the fuck would buy a coco bond? the worst of everything. all the risk, zero reward.

Thu, 02/04/2016 - 11:10 | 7139549 Those Fukerz Ha...
Those Fukerz Have R Money's picture

Oops.

Totally thought I was buying chocolate.....

 

Thu, 02/04/2016 - 11:14 | 7139560 buzzsaw99
buzzsaw99's picture

i'm guessing once you get converted to equity you are also locked in so you can't sell. fiendishly diabolical.

Thu, 02/04/2016 - 11:48 | 7139754 Those Fukerz Ha...
Those Fukerz Have R Money's picture

I didn't know what a CoCo Bond was until it was explained here. 

I'm getting that same feeling that I got years back when a former Merrill trader tried to explain to me the concept of a "synthetic CDO."

I'm sort of speechless.

Can't New York State's Superintendant of Financial Services (the person who has Ben Lawsky's old job) pull Deutsche Bank's Banking license?

Or is it better to just let Deutsche Bank die a natural death?

Thu, 02/04/2016 - 11:24 | 7139607 youngman
youngman's picture

Chasing returns..that is who...look at your local pension fund....these paid 8% and 6%

Thu, 02/04/2016 - 11:13 | 7139558 NEOSERF
NEOSERF's picture

You can almost hear the conversations between ECB and PBOC...why not us...why just the US markets...cmon....

Thu, 02/04/2016 - 11:21 | 7139595 youngman
youngman's picture

I see in the next 4 years the world defaulting on all of these loans...with the USA last in line....but it seems the world is awash in debt that can never be repaid....and TPTB know it too

Thu, 02/04/2016 - 11:32 | 7139660 walküre
walküre's picture

But EUR is up !

They're all going to get their asses handed to them when this shitshow blows up.

Draghi, there's a conference call from several Italian bankers...

Italy is blowing up. Greece was just a warm up.

There is no way they can paper over Italy's collapse.

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