Italy's PM Unloads On Deutsche Bank's Unfixable Problem: "Hundreds And Hundreds Of Billions Of Derivatives"

Tyler Durden's picture

After a tumultuous week for Deutsche Bank which saw the DOJ demand a $14 billion settlement for the bank's past RMBS transgressions, it was another bad day for the giant German lender, whose stock and contingent converts tumbled after the investing community realized that even a modest $5.5 billion final settlement would leave it perilously undercapitalized and likely scrambling to raise more cash.


As SocGen's Andrew Lim calculated, Germany’s biggest bank would be “significantly undercapitalized” even if an eventual settlement with the DoJ can be covered by the bank’s reserves. Any settlement above €5.4 billion would imply a capital increase is needed just to pay the fine, he wrote.

Taking prompt remedial action, news leaked over the afternoon that Deutsche Bank was hoping to bolster its balance sheet and boost its capitalization, when The Street first reported that it was trying to securitize at least some $5.5 billions of corporate loans to offload risk. The problem for Deutsche Bank, already ranked among the worst-capitalized lenders in European stress tests before the DOJ's $14 billion demand, is that by admitting it is in balance sheet "recovery" mode it would make shareholders even more nervous: what if the bank failed to securitize those loans? Or what happens if yet another legal settlement arrives? Or, worst of all, what if Mario Draghi cuts rates again and pressures the bank's inceome statement even more? There is little the bank can cut as is: CEO John Cryan already suspended the bank's dividend to preserve capital and has repeatedly ruled out tapping investors for more; but if he has to, he surely will.

But not even that is the biggest problem facing Deutsche Bank.

Recall that several years ago, we were the first to point out the true "elephant in the room", namely Deutsche Bank's $75 trillion at the time in gross notional derivatives which as we said then was about 20 times bigger than Germany's GDP, and 5 times bigger than the entire economic output of the Eurozone." Much to the chagrin of those who did (and still do) accuse of being conspiratorial something or another, since then Deutsche Bank stocks has plunged, reaching all time lows as recently as a few months ago.

Still, Deutsche Bank's "derivative problem" was largely ignored by the "experts" because why bring attention to something which is fundamentally a devastating break in the narrative that "Europe is fine" and the financial crisis is contained.

Fast forward to today when Europe is once again not fine, only this time one can't blame Europe's problems on Greece or Brexit, when in a surprising admission of reality, none other than Italy's prime minister Matteo Renzi, "went there" and slammed Deutsche Bank as the true "derivative problem" facing Europe.

To be sure, Renzi has his own problems, chief among which is how to conclude the latest and greatest bail out of Italy's third largest and most insolvent bank, Monte Paschi, a process which we hear is not going well at all, without resorting to a government-funded rescue - a plan which the Germans have repeatedly frowned upon. 

So it is not surprising that when faced with stiff resistance from the Germans, Renzi decided to call a spade a spade when, as Reuters reports, he said that the difficulties facing Italian banks over their bad loans are miniscule by comparison with the problems some European banks face over their derivatives.

As Reuters reports, Renzi once again broke with the fine European tradition of ignoring the massively overlevered elephant in the roon, and said on Monday that Germany's central bank chief Jens Weidmann should concentrate on fixing the problems of his own country's banks, after Weidmann had urged Italy to cut its huge public debt.

Specifically, Renzi told reporters in New York that Weidmann needed to solve the problem of German banks which had "hundreds and hundreds and hundreds of billions of euros of derivatives" on their books.

He was, of course, referring to Deutsche Bank.

Renzi, who has staked his career on a referendum on constitutional reform this autumn, has repeatedly criticized other European leaders in the last few days over what he sees as an inadequate European Union response to the problems of his country's economy and Europe's immigration crisis, which in 2016 has slammed Italy most acutely, largely bypassing Germany for the time being. In this particular case, Renzi was responding to an interview Jens Weidmann gave to daily La Stampa on Monday, in which the German said Italy needed to consolidate its budget to avoid doubts emerging about the sustainability of its public debt.

Renzi's angry response was predictable: stop worrying about Italy's debt problem, after all that's what the ECB is for, to monetize it and keep rates artificially low indefinitely. Instead worry about your own mega bank, which judging by its stock price, is something the market has been doing for quite a few months now.

And while Renzi may be wrong about almost everything else, he is right about Deutsche Bank's "hundreds and hundreds and hundreds of billions of euros of derivatives."

€42 trillion to be precise.

Then again, it's more than just Deutsche Bank's problem; more than just Germany's problem. If something bad happens to DB, it is Europe's problem.

So while DB may or may not find a few billion under the rug to plug its latest leaking hole, the real question is what happens when, not if, another crisis flares up and one or more counterparties to the bank's trillions in various derivatives suddenly is unable to post margin, as its obligation becomes a pre-petition claim, sticking DB with the entire gross notional derivative amount and forcing the German giant to foot the gross, not net. Something tells us that like in 2013, nobody will acknowledge the biggest elephant in the room: after all, at this point financial liabilities are now a political issue (especially when one can blame Putin). The only difference with 2013 is that as Europe continues to splinter, more disenchanted political leaders (because the "enemy of my enemy is my friend") will join Renzi in admitting that Europe' emperor - Germany - and its mega bank, is not only naked but one needs scientific notation to express just how big its financial problems truly are.

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nmewn's picture

In a normal casino, do they issue insurance in the event a player loses?

No, I didn't think so ;-)

LetThemEatRand's picture

But the casino has plenty of insurance in the event a player wins too much.  His name is usually Italian-sounding.

Manthong's picture

So, this dude is like an economics particle physicist or rocket scientist, right?

Like from earth to the moon in a cannon round.

Hundreds of billions ?

So, he hangs here, maybe...


PS.. the last figure I heard is Douchebank between 50 and 70 €Trillion notional.

Globally banks, as much as $1.25 Quadrillion notional.

They are un-backed, naked, fractional depositor rationalized  BETS !!!


Stackers's picture

but it's just all zero net "hedges" .......... /sarc

espirit's picture

I just don't see the problem.

Print it.

Crash, then burn.

auricle's picture

too big to fail. Bail them out putz. Ctl-P

BaBaBouy's picture

What noone is asking is... HOW MUCH of the $50 Trillion is GOLD Shorts ???

When GOLD explodes to $2250, How much will DB Owe ???

Just a matter of time, maybe very little time.

Kirk2NCC1701's picture

But the owners don't have Italian sounding names. Is Adelson or Wynn Italian?

Freddie's picture

Yeah like Meyer Lansky who started running heroin through Mexico.  Possibly over Romney family border land.   Lanksy never went to jail.  To Francis Ford Coppola's credit - he kills Hyman Roth (Lansky) off in The Godfather.

Who is good friends and business partners with Lansky plus also backed LBJ (+ murder of JFK) and Obama?  The Crown-Krinsky family aka General Dynamics.

Hulk's picture

Banks have the best kind of insurance, public bailouts with no premiums

Its 100 pecent profit baby !!!

nmewn's picture

Quite a racket huh? Good thing its all "legal" and whatnot ;-)

Yukon Cornholius's picture

De jure, the casino also has to have 1:1 legal tender available for every chip in play. No fucking fractions.

Not so in derivatives banking.

GRDguy's picture

Some financial sociopath wants to shut down Deutsche Bank just like they did Bear Stearns and Lehman Bros.  

I'm sure there's billions to be made by not keeping Deutsche Bank's paper promises.

gregga777's picture

Deutsche Bank doesn't keep its promises. Have you been asleep? It's a criminal crony capitalist banking gangster conporation just like Goldman Sachs, JP Morgan Chase, Wells Fargo, Bank of America Merrill Lynch, Credit Suisse, UBS, RBS, etc., etc., etc.

NoDebt's picture

I think we can put them under with just a few billion more in fines.  Unleashing the trillions in questionable derivatives bets when they go all pear-shaped is not even required in this case.  A gentle nudge over the cliff is always preferrable to flinging them off bodily while screaming "I'm going to throw you off this fucking cliff!"



gregga777's picture

Bump. Oops! Sorry about that…I didn't see you standing there on the very edge of that cliff.

gregga777's picture

Deutsche Bank is a criminal crony capitalist banking gangster conporation. DB deserves to fail and to drag the entire rotten, corrupt edifice of Western criminal crony capitalism down with it.

Kirk2NCC1701's picture

In that case, start cheering for DB to fail. Cheer for ever more penalties. 

Hell, if I were DB, I'd do all kinds of ballsy and profitable things -- things that even GS would not dare -- and then say..

"I dare you to knock this battery off my shoulder. I dare you."

BurningBetty's picture

But if it is planned to bring DB down, then it's obviously part of the agenda...

Yen Cross's picture

  How many "Golden Parachutes" has Joe LaVorgna approved?

ShortTheUS's picture

He sounds like Beppe Grillo and is proberly trying to attract the populist 5* party vote.

Treason Season's picture

Yes exactly. The other day he pulled some media stunt refusing to attend some meeting with France and others.

tarabel's picture



What I find interesting in this story is the assertion that DBs book is down to 42T from 75T. 

Are these expired derivatives that are not being renewed? Offloaded to the Greater Fool somewhere else?

Is this an industry-wide trend that might herald a return to sanity if they can hold it together long enough to slowly let the air out of that particular balloon by not taking up any new ones and allowing the old ones to die off naturally?

Yen Cross's picture

 Warrants? They're just options.

 Now they're called stocks, as opposed to "preferred shares".

espirit's picture

No greater fools left.

Perhaps Peru, or Venezuela?

Scuba Steve's picture

... to The Fed and then creative 100yr Bonds forced into your 401k's?

NoDebt's picture

But by going through that process they'd be forced to admit most of what's on their balance sheet isn't actually worth anything.  Nobody wants to be "that guy" who did it.  If had wanted to do that it would have happened in late 2008.  And it was at precisely that point it was decided we would NEVER do that.



mosfet's picture

No one would dispute that if it were a German or French bank needing a bailout, the EU would be 'offering' if not tripping over themselves to facilitate the rescue.  This seems more to do over EU rules that informally only apply to Southern EU countries living on the wrong side of the train tracks so-to-speak.  So is Snobbery or Racism the more appropriate term here?  Or maybe it's just the Germans wanting to stick it to Draghi's home country?

Aussiekiwi's picture

Load the 42 trillion into a legal entity called Deutsche Bank Stuffed or something and keep only the AAA assets on your books, all fixed, let the speculators drown.

Scuba Steve's picture

Thats the kicker, I'm guessin the AAA makeup probably less than 10% LOL.

CHoward's picture

NO one should ever talk about the elephant in the room.  Someone take that man outside and discipline him!

JailBanksters's picture

Derivatives are only worth a sausage if Deutche is worth a cracker.

And Deutche is not worth a cracker.

Will DB last until Oktoberfest....


Yen Cross's picture

 Italy is a catastrophy.

 That is all<

  Food, Suits, Cars,  and the Mafia still can't show a + balance sheet.

  Italy makes Greece look like PIKERS !

squid's picture

Food, Suits, Cars,  and the Mafia still can't show a + balance sheet.



Its italy so there are several balance sheets, which one are you referring to?


i can assure you that the FAMILY'S balance sheet is just fine.....

And it does not ledger paper money of any kind I'd wager.



Rellorellin's picture

The ECB is filled with DB graduates. The ECB will just pay their parking ticket for them at the sheeples expense. You're welcome!


Add marijuana to the scientific notation, and maybe some scotch whiskey too. Clearly, the finger pointing has started which ensures civil war in the long run.


Way to go, Goldman, you blew the EU into a thousand pieces with that Giant Vampire Squid of yours. When Deutsch goes so too does GS.

Mazzy's picture

Two words: LOL!

bigkahuna's picture

This may be where these people star eating each other.

Tear the ship apart until you've found those plans...

Duc888's picture




There is not one single part of Dooshbank that is solvent.  As soon as Dooshbank goes...Italy's banks all go poof.

CCanuck's picture

Its a good thing that Portugal, Ireland, Greece, France and Spain's banks are in good shape...
Otherwise, I don't think the "sound" EU banks would survive if Dooshbank failed.

/s....for those that need it.


DC Beastie Boy's picture

Three words, "ten fucking years".

We've been talking about this for ten years and now they start bitching?

TsyFox's picture

Blackmail, Italian Style. It is becoming increasingly clear that Italy expects what was denied Greece, namely a printing press solution to their debt problems. What the Italians, along with their French & Greek allies, are failing to grasp is that the majority of EU countries have their debts under control and are not at all likely to favor a hyperinflationary solution to bail out the profligates of the EU. If their is a flaw in the EU treaty structure, it is the inherently deflationary structure, hard money, due to it's no bailout clause. N Europe insisted on this, as they had extensive experience with Mediterranean finance.

As it is very doubtful that the more conservative EU members of the east and south will agree to a watered down currency, A SHOWDOWN LOOMS. Renzi understands this, which is why he is trying to blackmail Germany into a printing press solution.

Billy Shears's picture

Yes, MAD strategy, mutually assured destruction banker style. Italy "threatens" to leave the EU but really Germany should be the next to move. Political hubris unfortunately drives these calculations, and greed of course, but in a rationale world Germany would be next to leave. Anyway you cut it Europe is in for a bad time.

Nesbiteme's picture

Deutsche Bank is a financial "Deep Water Horizon" about to spew an unstoppable plume of worthless paper promises and counter promises of promises to counter parties who have promised to owe more paper to other financial institutions and governments within very tight parameters of market performance. One might say it's a new Lehman (as we have all heard this over and over), but it's not comparable to Lehman. Because, to Lehman's credit, at least Lehman's controllers put all their shit in one shoe box. Deutsche Bank has made a shoe box for each turd and hide them all over the world. 

casfoto's picture

How come all the banks outside of the US have huge derivative losses? It was my understanding that the US banks caused all these losses world wide.?? Why do we see Goldman Sachs people or ex people all over the world in positions of power? Italy? Draghi? Australia? Canada? All over the EU etc etc and yet GS never has any dirty laundry exposed at all??? Why is Europe in such trouble when they really are the economic power of the world. It seems that the BRICs ( who we built up) are now being pushed down the tubes (regardless of the huge currency war that was pushed upon them after they announced their own World Bank and their own IMF). Am I reading this correclty?  When I see the attacks upon SECRECY IN SWITZERLAND and the punishment by the US on UBS and other banks that have to pay the fines or they can not play in the game....and then read that the Rothschilds (after the Panama papers were disclosed and tons of US companies are involved) have opened up their own UUUUUUUGE secret bank accounts in Reno Nevada where no secrets of hidden money will be divulged????? This is after destroying the secrecy of Swiss Banks of course. We have lost Europe as an Ally. And do not forget recent chess moves. Germany and other Nato countries are screaming that Vicki Nuland and her Neocons will not garner support for another WW on European soil. In responce the EU came forward with a $14 billion dollar TAX on Apple who has skirted paying its fair share of taxes here in the US and now in Europe. Of course then we responded quickly with a $14b fine on Deutsch Bank. And the last arrow was the $500 million fine on Mac Ds for them not paying taxes...I can not wait to see the next huge fine on the Queen Mother for rent in her castle.

If I remember correctly after the 2007-8 crisis the BIS came out with the total world wide debt of $658 Trillion dollars. A lot of it had to do with AIG derivatives, MDS, CDO's and all the BULLSHIT that was sold by our Lehamns and Bear Stearns and GS and MS and JPM etc etc and yet all of the debt seemed to land somewhere Catalina Island or some where not close to our shores. Now the debt is $709 trillion and climbing. Am I alone in these thougts? I look at the currecy wars that have been going on for the past 4-5 years. Will Durant in his "Lessons of History" mentioned that greed can call imbalances of wealth in those countries that we use to bolster our own wealth and then it becomes a problem. So, are we the nation of Exceptionalism or are we the world wide criminals that have hung everyone else out to dry. This does not appear to be a good omen.  We are all tied together in this sphere. Other people have nuclear weapons. Do not think that the rest of the world is stupid and or unwilling to hit back. How long did Rome hang on to its empire as wealth/greed destroyed its citizenry.?? We are a lot further along in our destruction and it has happened in a lot shorter time period. We do not have control of the world anymore. We are an overweight country that has not come up to par with our education and or our minds. Do not push the arrogance of is the first sign of a slide to the bottom. And we have Italy giving Germany hell??? Italy is bankrupt.