Analyst Warns Deutsche Bank's Problems May Now Be "Insurmountable"

Tyler Durden's picture

Call it some no holds barred German bank on German bank action.

After a tumultous start to a year that Germany's largest, and judging by the tens of billions in legal settlements and charges also its most criminal bank, Deutsche Bank, would love to forget, things got worse over the weekend when a note issued by another German bank said that either Deutsche will have to massively dilute its shareholders as a result of "insurmountable" debt, or a fate far worse could await the Frankfurt-based lender.

Berenberg analyst James Chappell pulled no punches and spoke in uncharacteristically frank terms, traditionally reserves for the fringe media, when he said that "facing an illiquid credit market limiting Deutsche Bank’s (DBK) ability to delever and with core profitability impaired, it is hard to see how DBK can escape this vicious circle without raising more capital. The CEO has eschewed this route for now, in the hope that self-help can break this loop, but with risk being re-priced again it is hard to see DBK succeeding." Chappell then broke the cardinal rule of sellside analysts: never issue a Sell rating on a fellow bank. "We downgrade to Sell and cut our price target to EUR9.00."

According to Chappell, the biggest problem, of which DB has many, is that it simply has too much leverage, some 40x to be precise, something we have warned about since 2013. To wit:

Too many problems still: The biggest problem is that DBK has too much leverage. On our measures, we believe DBK is still over 40x levered. DBK can either reduce assets or increase capital to rectify this. On the first path, the markets do not exist in the size nor pricing to enable it to follow this route. Going down the second path also seems impossible at the moment, as the profitability of the core business is under pressure. Seeking outside capital is also likely to be difficult as management would likely find it hard to offer any type of return on new capital invested.

In other words, DB may be frash out of options. But wait, there's more bad news because as Berenberg adds, the entire "industry is in structural decline"

The difficulty in analysing investment banks from the outside is that it is hard to establish core profitability. In an industry in structural decline, investment bank management teams are also likely to face similar challenges. Each weak quarter is seemingly greeted with an excuse that it could have been better if not for the wrong type of volatility, client uncertainty or central bank intervention. Q1  2016 saw the absence of one-off profitable events that have protected revenues in the past. We have perhaps had the first glimpse of what core profitability in the investment banking industry really is (ROEs in the midsingle digits at best) and it could be even worse if the traditional seasonality occurs.

Which brings us to his price target and Sell rating:

Price target cut to EUR9.00: We look at DBK’s valuation in two ways. One is a sum-of-the-parts analysis on the basis of normal conditions returning. This would imply a price target of EUR15.00. The second is a leverage adjusted P/E using the sector average multiple of 10x. This implies a price target of EUR9.00, using tangible book value. Considering “normal” conditions are unlikely to return and risk is re-pricing, we use the latter.

We applaud Chappell and only wish more of his peers had the guts to tell the truth and call it like it is.

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knukles's picture

Well of course.  In the Land of Negative Interest Rates you go paying 4% or 5% for deposits?
And some bright people are wondering if there's a problem.

Well, in all fairness, I always do love it when "they" finally choke up stuff that which to so many others has been clear for such a long time.

Bay of Pigs's picture

Since Lehman will now become since Douche Bank.

remain calm's picture



"We applaud Chappell and only wish more of his peers had the guts to tell the truth and call it like it is."

Fuck him, the truth is not 9 Euro, it is ZERO. How is that for truth MOTHER FUCKERS.

0b1knob's picture

Depositor bail in in 5...4...3...2...1...

Row Well Number 41's picture

How fucked up does your business model have to be, to be going broke, when you're paid to borrow money.  All you have to do is sit on it.

Fish Gone Bad's picture

I guess it takes a bank to REALLY fuck things up...

thesonandheir's picture

Buy DB I smell a short squeeeeeeeze :)

BuddyEffed's picture

My conclusion too. Bail in likely on the new accounts at 4 or 5 percent is being telegraphed.

Chuckster's picture

Fabulous point as always!

RaceToTheBottom's picture

TBTF is a business strategy that has never failed.


This time is not different.

ooga's picture

Really, now they are saying DB has too much leverage,. LOL

knukles's picture

Not to mention the single largest swap book in the world. 
Just remember kiddies, when the shit hits the fan, the fairy tale of netting no longer holds unicorn sparklies.

BandGap's picture

I'm no fucking financial "genius" but I could have written this "article" in about a fucking paragraph.

Pull the fucking pin already.

Now back to the overseas markets.

maskone909's picture

When will that moody's downgrade come? They are lagging. Tonight would be great. Thanks.

BandGap's picture

We are conditioned in our behaviors by the years.......of hearing bankers speak and it being of something of significance. For me, this is no more for at least 8 years.

We are dealing with the residual Pavolovian instincts here but they are fading. Think about all these statements.

Soon people should listen to nothing at all since they (the people telling you to believe something or do something) EXPECT the informatoion to deliver a certain RESPONSE.

Get over the control.

Seeing Red's picture

<--- The highly-paid professionals at DB know what they're doing.  They can recover due to strong fundamentals.

<--- The overpaid financial twerps at DB are furiously updating their resumes as panic sets in and time runs out.

just the tip's picture

the highly paid professionals and over paid financial twerps at DB have their G5s gassed up and flight plans to panama.  giddy-up.

sun tzu's picture

We should get a nice tropical paradise island for the banksters. When they flee there, we can carpet bomb it.

Seeing Red's picture

A neutron bomb might be more environmentally friendly.  Why waste a nice island?

tarabel's picture



Bikini Atoll.

Comes pre-nuked for your convenience.

just the tip's picture

johnston atoll has/had a pluto yard.  sort of self explanatory, yes?  plus, they never did remediate the soil where they stored the agent orange.

Fish Gone Bad's picture

North Korea would imprison them, their children, and their grandchildren.  All put to hard labor until they die...

bob_bichen's picture
bob_bichen (not verified) sun tzu May 16, 2016 11:44 PM

Sun Tzu - I have found your island and will go partners for the Jet Boat service to the island. 

Banker's "Picnic Special"  :::  "Don't Worry - We'll Come RIGHT BACK for You!!"

Chuckster's picture


Leverage is meaningless.  When people panic....then it will be over. 

williambanzai7's picture

Hardy har har, something we all knew all along.

khakuda's picture

Lehman was 40x leveraged. What could go wrong?

Winston Churchill's picture

Sure was, their derivative book balanced.DBs leverage is closed to 400:1,this ANALyst

must be drunk.

nmewn's picture

In a time of universal deceit, where everything that should be up is down, & down is up, with the negative cash flow from negative rates (conceptually) you could buy even moar negative bananas with the negative dollar!

Tastes great yet less filling! ;-)

knukles's picture

I said that very line Saturday on the golf course when I belched

just the tip's picture

that's why you eat bananas.  they taste the same coming up as they do going down.

silverer's picture

OK, OK. Don't go long anymore. Gartman, are you in the bathroom again? Gartman?

WTFUD's picture

They're all broke these Potemkin Banks.

In other News GCHQ has joined Twitter. It's first contribution ' Hello world '

Tomorrow , Drone Strike weekly Totals and NSA Funding.

knukles's picture

Now that's serious fucking funny.  Kudos!

gwar5's picture

Is DB considered a SIFI -- Significantly Important Financial Institution, aka TBTF? Are there European SIFIs?

If so, who bails them out after bail ins? The ECB,Bundesbank, IMF,FED, or all of the above?

Reason for asking is they have one of the largest derivative exposures.

knukles's picture

Better question is which side of the deals is Goldman on, because that's the side'll get paid out in full.  Who pays matters not.

financialrealist's picture

If DB is out, it's another multi trillion bail out or bail in of the global system. I think this is "the tigger". They can't save the market and the banking system simultaneously with nothing left but jaw boning and rhetoric. The dominoes start to fall. But who the fuck knows. Nothing makes sense anymore.

DontFollowMyAdviceImaDummy's picture

when DB implodes from whatever insane leverage they actually have and everyone decides to sell everything the response that makes sense from TPTB will be to print-to-infinity trying to prop-up all of their house of cards in a tornado.  the only answer i have come up with is i better have a year's worth of wages in silver and fractional gold because who knows wtf anything else will actually be worth after the tornado and idiot policy makers do their things.

smacker's picture

I'm fairly certain DB would be a TBTF bank in Germany, so depositors would be prime suckers for a bail-in.

Omega_Man's picture

pile on the shorts.... what happens if it is dissolved and you can't cover your shorts?

offwirenews's picture

i wonder if lehman had a price target, too

someup-somedown's picture

Over at SuperStation95 the other day....

Germany's (almost bankrupt) Deutsch Bank is suddenly offering five percent (5%) interest to folks who deposit 10,000-50,000 Euros for a minimum 90 days. But this offer is only good until June 24, about 40 days from now.   Is this a last gasp to lure people into the banking system before it fails?  Some think that's exactly what it is, especially given some new language included in the account contract  "savers at risk of losing deposit . . ."

just the tip's picture

i read that also.  did you put together the june 24 date?  the brexit vote is on june 23.  kawinkydink?

smacker's picture

I read that too.

Seems to me that anybody who succumbs to this temptation is asking to be bailed in or worse.

OldPhart's picture

It also seems to set a date for SHTF launch.  I think I'll skip the bills this next couple paychecks and buy more silver.

I can skip them, they're all paid a year ahead.

Funn3r's picture

I think that was 90 days expiry sometime in September.

cart00ner's picture

Could be something in it - ABP, Europe’s largest retirement fund, which provides pensions for one-sixth of the Dutch population, also said last month there is a “distinct possibility” ofbenefits being cut in 2017 due to declining interest rates.

financialrealist's picture

The canary in the coal mine. Been away from my bloomberg today but as of yesterday CDS spreads are up 17% since end of April. Stocks down same overthe period. Watching the $12 dollar floor. 5% yield for 3 mos., window dressing in times of desperation. You'll never see it again.

DirkDiggler11's picture

I don't know this Chappell fellow, but my advice to him would be to avoid the "nail-gun" aisle in his German Home Depot equivalent and stay the hell out of tall buildings or he may end up shitgummed or worse yet suicided .....