Deutsche Bank Unexpectedly Found To Have Massive Capital Gap, Larger Than Its Entire Market Cap

Tyler Durden's picture

After the ECB concluded its latest annual stress test, which as expected found no problems with Europe's largest banks instead scapegoating Italy's well-known troubled banks in results that were widely discredited by the market, yesterday in an unexpected outcome, German economic research institute ZEW found that Germany's largest bank, Deutsche Bank, had the highest potential capital shortfall, as much as €19 billion in a study of 51 European banks using U.S. Federal Reserve stress test methods. The capital gap is greater than DB's entire market cap. 

Using the Fed's approach, and thus a far more credible approach than that proposed by the ECB, the 51 European banks showed a total capital shortfall of 123 billion euros, with the largest gaps at Deutsche Bank, Societe Generale (13 billion euros) and BNP Paribas (10 billion euros).

"European banks lack sufficient capital to offset the losses expected in the case of another financial crisis," the ZEW said in a statement on Tuesday, cited by Reuters. ZEW Finance Professor Sascha Steffen worked with New York University Stern School of Business and the University of Lausanne researchers to run stress tests used by the Fed in 2016 and the European Banking Authority (EBA) in 2014 to compare capital needs and leverage.

While Societe Generale and BNP have market capitalisations of 26 billion euros and 55 billion euros, respectively, well above the study's theoretical capital gap, Deutsche Bank would find itself in trouble if the ZEW calculation is correct as it has a market capitalisation of less than €17 billion.

Which is why it promptly disagreed with ZEW's calculation. "There is an official EBA stress test that checked the capital backing against very tough and adverse conditions and this showed there was no acute capital need at Deutsche Bank," the bank said in a statement in response to the study.

Deutsche Bank showed a weaker reading in the EBA test than most of its peers, a sign that Germany's biggest lender still has far to go in a revamp it launched last year. Although the EBA gave the banking industry a broadly healthy prognosis in its stress test results published on July 29, it said there was still work to do.

The EBA tests had no pass or fail mark and many observers said they did not remove concerns over capital. This year's EBA stress test was not aimed at uncovering capital gaps, but ZEW's Steffen said the deficiencies revealed by combined stress scenarios could be overcome.

"The USA have drawn their own conclusions and implemented comprehensive measures for the recapitalisation of the American banking sector as early as in 2008," Steffen said."A lack of political will means that this has still not happened in Europe," he added.

Adding insult to injury, Martin Hellwig, director of the Max Planck Institute for Research on Collective Goods, said stress tests carried out by the European Central Bank revealed the Deutsche Bank would be left in a precarious position in the event of another financial crisis, and warned that Germany's biggest bank is teetering on the edge of crisis and they only way to protect it against future shocks is to nationalise it. 

While it would probably not go bust in a fresh downturn - he predicted the bank which is crucial to the German economy would face serious equity problems. He said: "Putting it short: for a long and serious crisis there simply wouldn't be enough money."

He said: "Turning banks into community property through public funds is not only possible but also necessary. If a bank is no longer able to help itself, the federal government should take on shares and exercise the related control functions."

He continued: "In Sweden the state stepped in in 1992, filleted out unprofitable divisions and left stable companies. It was a successful, temporary nationalisation. The goal had always been to enable a clean-up and to then get out again." He said nationalisation may not have been part of Germany's plan since the last financial crisis but unusual scenarios sometimes require desperate measures and would be appropriate for banks as such a large part of the economy is entirely dependent on them.

Mr Hellwig said: "I assume that this tool will be used when it comes to an institution where there are fear that a settlement procedure would bring significant system damage." Banks that are "too big to fail" could be saved with tax-euros and the investment might even pay a return for the state. 

Another possible effect of state intervention would be the inevitable modernisation that would improve the bank which has seen its retail divisions become barely profitable. Mr Helwigg said: "From the outside, one gets the impression that in the last 20 years the investment bankers controlled the bank and sucked it dry. Nationalisation in an emergency could be a step towards more rationality in the banking world."

Considering DB continues to trade within touching distance of its all time lows, the market appears to be far more in agreement with the ZEW than the ECB, and certainly worries about DB's solvency remain.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Looney's picture


Deutsche Bank must’ve used Volkswagen’s crooked software.  ;-)


max2205's picture

Sure we'll our Post Office loses 1.5 billion a quarter. ... Govt efficiency at its best....

LongMarch's picture

DB share price is 12.37, for now.

bamawatson's picture

has mark cuban addressed this issue yet ?

SWRichmond's picture

(non-US, non-Fed) Bad Bank.  "Look over here!"

American Psycho's picture

And in the spirit of "up is down and bad is good," DB is up 3% in pre-market. 

jcaz's picture

....And it's gone.

They'll try to squeeze the shorts once again, until it all ends in tears.

GadExp's picture

Enormous gap discovered.  Fine them $12.5 million.  Stock price rises.




johngaltfla's picture

I just wonder how bad it REALLY is should their derivatives positions hit the shitter.

stocktivity's picture

It's all Bullshit!!!!  Rally on

TradingIsLifeBrah's picture
TradingIsLifeBrah (not verified) stocktivity Aug 10, 2016 6:55 AM

Can't be true, they passed the stress tests /s

PT's picture

What's so fucking hard about "Just stop lending money to people who can not afford the repayments"?

Whoops!  Sorry, my bad.  'cos then you would have no customers.
How about, at least, don't finance Ponzi schemes?  You know, dividends come from profits, profits come from revenues, share price as a function of income, rent covers mortgage, mortgage as a function of rent ... that kind of thing?

Whoops!  Sorry again, I forgot.  It's all too hard.  I'll go back to sleep.

Doom Porn Star's picture

You miss the point entirely.

The point is to 'loan' worthless 'money' creted out of thin air to people that cannot pay it back in order to seize the valuable collateral without giving the appearance of outright theft.

Try it for yourself and see if you understand it.

Print up some coupons and trade 'em for a factory or a housing developement.

Act as if you have done something intellignet and noble by convincing people that your coupons are really worth productive assets and well built homes...

Don't forget the 'vig'...

Urban Redneck's picture

So for a mere 18 billion I can acquire over 75 trillion in derivatives exposure, and lever up my portfolio over 400,000%...

If they need additional 19B in capital they're going to have to come up with some creative marketing to make that pig look pretty.

OpTwoMistic's picture
no stress tests include derivatives. All banks are linked and the derivatives are in the trillions.


I MISS KUDLOW's picture

Duech bag looks like its up in pre market nothing to see here move along,,,,,,,,,although the chart is worse than enron,,,,,i guess we are waiting like we did with bush ive learned the last 8 years that the debt doesnt matter, unlimited credit in the states to everyone, student loans for everyone and blacklives matter

ArkansasAngie's picture

Break up the banks.

TBTE -- Too Big To Exist

Let's skip bail outs and go right to bail ins.  Start with the equity of the employees who drove the banks into the ground.

Farqued Up's picture


You want to confiscate savings? Do that and they will set fire to the entire banking concept. Gold will hit $100,000 per oz before it retracts back to $20,000.

Cypress is not representative of the world.

cowdiddly's picture

Cyprus is not the representative? Oh yes, it is its the template. You must have missed that g20 meeting last year

No worries, let er blow. Cowdiddly Azz National has four divisions

The Azz pocket and petty funds division

The emergency funds Mattress and Sock drawer branches

The long term tomato garden and mason jars Holding company

And the old rattlesnake den Bullion vaulting services.

 Fortress balance sheet with soon to be zero liabilities

RiverRoad's picture

Right.  Banks are not "things".  Banks are the PEOPLE holding the charter.  Go get those PEOPLE and suck them dry.

wildbad's picture

bail ins are a bad joke...empty legislation which is already becoming an inconvenient impediment to further theft by gummint and the real powers that be.

Doom Porn Star's picture

From those who took the most should the most be taken..

luckylongshot's picture

This was only unexpected if you were  (a) A mentally impaired idiot living in solitary isolation or (B) a follower of the MSM

For everyone else this was no surprise.

adanata's picture


Hmmm... "...if a bank is unable to help itself..." IT SHOULD FU**ING COLLAPSE ALREADY..

Ol Man's picture

I guess I have a different understanding of "Unexpected"...


PirateOfBaltimore's picture

"Temporary nationalization" that leaves stable companies?


And here I thought that already existed: receivership.

SomethingSomethingDarkSide's picture

DB Liquidity Reserves = 1.5% of Total Derivative Exposure.  Lol.

ANestIOS's picture

aha, that explains DAX's stellar levitation

wmbz's picture

He said: "Turning banks into community property through public funds is not only possible but also necessary. If a bank is no longer able to help itself, the federal government should take on shares and exercise the related control functions."


~Yea, it's very easy to spend other peoples money (taxpayers) to clean up a fucking mess left by highly paid assholes, that will pay no penalty, ever.

Until the taxpayers push back that is exactly what they will do, over and over again.


THE DORK OF CORK's picture

All money is owned by the bank 

No such thing as taxpayers money.

You as a taxpayer are merely another income stream for the bank.

Deutchbank is bankrupt because it has bankrupted it's host.

Government needs you to pay taxes's picture

What about all those rich fucking banksters?  The ones that created this mess.  Any bailout should be contingent on a massive clawback from the 1%er Gucci-wearing banksters.I'm talking about Greenwich home prices down 20% clawback.  Hamptons homes down 30% clawback.  

THE DORK OF CORK's picture

Most likely when you increase taxes it flows into another bank.

The bankers will replace the nameplate and base of operations.

No need to tax property.

If you live in it then you own it...etc etc.

Afterall you can only live in one home at a time.... 

Georgist thinking is severely flawed.


Pumpkin's picture

Banks don't even have to have the money to lend, they just create it.  And the banks still can't make a good business out of that!  Fiat is a lie.  A lie always dies.

RiverRoad's picture

"Charlie Brown" once said it best:  "Paper clips!  A million paper clips!  I'm rich, I'm rich, I'm rich!"

ToSoft4Truth's picture

Better move your money away from anything Deutsche Bank touches. 

SpanishGoop's picture

What any bank touches for that matter.

But that would be difficult.


THE DORK OF CORK's picture

Do not nationalise banks

Nationalise money.

You must give ownership of property and their homelands commons back to people. 


THE DORK OF CORK's picture

Universal income is not what it seems.

It is merely another form of redistributive tax and spend with perhaps less administration costs.

A national dividend however takes the credit  banks down as it is a direct attack on their disastrous monopoly of credit.

ToSoft4Truth's picture

Would you rather work and pay taxes or just accept the Universal Income and boat all day? 


We're on the front-end of UI.  It'll be great for us.  Ida May Fuller knew easy street when she saw the entrance. 



THE DORK OF CORK's picture

I suspect work would become more local and indeed real.

Less of work would be required but it would become more satisfying.

Currently we are working for the machines which is more then a bit perverse.

The authorities mass produce cars and such.

They depreciate into dust creating a crisis of net real income.

It's a deliberate tactic to preserve the freedom of the few over the many. 

ParkAveFlasher's picture

All things depreciate to dust, make no mistake.  We can all be artisan cheese makers and oil painters but the dust depreciation doesn't change.

THE DORK OF CORK's picture

In a typical consumerist war economy the depreciation component of Gdp increases dramatically.

Imagine the car fleet today.

In Europe it now consists of very expensive,  heavy and complex diesel vehicles which start out costing 20,000~ Euro each.

However if they made a petrol powered  2cv like car today (a icon of design minimalism) it might retail at 1,000 euro

The 2cv can therefore only depreciate by a max of 1000 euro.

A modern car does this when a owner turns the ignition switch on for the first time.

Since 2012 especially credit for these cars has totally dominated national jurisdiction money supply figures in the euro area.

It certainly has in Ireland where 1 to 5 year loans has exploded relative to all other credit sectors.

This is a consumer war economy.

Cars have replaced tanks.

From a economic point of view there is little difference between destruction on the battlefield and depreciation in the driveway.

The goal of economic policy is to preserve the freedom of the few over the many (read Bellocs Servile State)

Not to create wealth or wellbeing.