Deutsche Bank ’s Problems Could Snowball... As Soon As Next Week!

Secular Investor's picture

Deutsche Bank Image

Last week, the situation of Deutsche Bank kept the entire financial world busy as a $14B fine was hanging like a sword of Damocles over the company’s virtual head. We have to admit we had a good chuckle when the mainstream media were falling over themselves to report on Deutsche Bank’s problems, because most open-minded people in this sector already knew the company was one of the weakest links in the entire financial system, with the possibility to infect dozens of other players.



A weak link indeed, but most definitely not an unimportant link considering Deutsche Bank isn’t just ‘too big to fail’ but ‘waaaaay too big to be allowed fail’, and the existing problems very likely are just the tip of the iceberg. The markets were suddenly spooked by a potentially massive fine related to the sale of toxic mortgage bonds, but the concerns seemed to alleviate after the CEO of the bank published an open letter emphasizing the bank still has plenty of liquidity and reserves of in excess of 215B EUR.

It does look like the term ‘reserves’ has been used in quite a loose way, considering the majority of these so-called reserves are actually debt, and the market shouldn’t confuse ‘reserves’ with ‘liquidity reserves’. Even if you have 200B+ in liquidity, there will be a point in time when a company has to repay its creditors or refinance the existing debt, so relying on borrowed liquidity is usually just kicking the can further down the road. Indeed, after checking the H1 financial results of Deutsche Bank, the equity portion of the balance sheet is just a fraction of the 215B EUR in claimed reserves. The total shareholders equity was just 62B EUR as of at the end of June, with an equity/total assets ratio of just 3.3% compared to 12.2% at Bank of America and 12.75% at Citigroup. Even Banco Santander’s equity/total assets ratio is twice as high as Deutsche’s!


Source: Deutsche Bank

Die Zeit reported earlier this week the government and financial authorities were already preparing a rescue plan in case the bank could not meet its commitments by raising cash on the open market, because even selling the Abbey Life insurance group to Phoenix Life holdings for approximately $1.2B last week won’t move the needle in case of a huge liquidity crunch.

Indeed, the market wasn’t buying CEO Cryan’s optimistic speech, and on the open market the 6% CoCo bonds fell to less than 70 cents on the dollar, indicating a lot of debtholders wanted to get out of these CoCo’s as fast as possible, and the price of these bonds recovered slightly after the rumor about a $5.4B settlement was in the making.



We are uncertain about why the market thinks a $5.4B settlement would be good news. Sure, it’s less than the $14B the DoJ was originally seeking from Deutsche Bank, but even if the $5.4B number would be correct (Morgan Stanley thinks the total settlement will be closer to $6B, which we consider to be more likely considering Citigroup was slapped with a $12B fine, but settled for $7B), it would wipe out the entire provision on the balance sheet! Indeed, at the end of the second quarter of this year, the total amount of provisions on Deutsche Bank’s balance sheet was just 5.5B EUR ($6.1B), so a $6B settlement would wipe this out completely.

If you really believe a $5.4-6B settlement would solve all problems, think again. Selling toxic mortgages isn’t Deutsche Bank’s problem, but the exposure to the derivatives market is. And this problem could start snowballing, anytime now.

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webmatex's picture

Great and spooky article - thanks B.D and thanks James Autio.

If one little dot is 100 billion then my entire town would be barely visible in there.

This must be the Greatest Illusion ever - and it's backed by less than an atom.

Faith in an ultimate creator is a doddle compared with having faith in this crazy fiat nightmare matrix.

RIP Federal Reserve and Global Central  Banking,

Dust from dust, Ashes from ashes.

Meanwhile in the real world....

Codwell's picture

Boy the last time Germany's economy went this far south ....  Poland better be on guard.

zippy_uk's picture

Hungry is all ready building fences...

zippy_uk's picture

"..and if the first green bottle should accidently fall (on to the second green bottle),

  then 42,000,000,000 bottles will accidentally fall.."

Shlomo Schwartzman's picture
Shlomo Schwartzman (not verified) Oct 3, 2016 2:29 AM

I'm thinking about that story about the hook nose

who was storing the town's gold

and then lent too much out.

JPMorgan's picture

I think mergers and acquisitions will be to the rescue here.

It's doubtful they will let Deutsche Bank fail, the tail risk and knock on effect is just too great, it would drag them all down.

Kprime's picture

I love a good snowball fight

jharry's picture

dead cat dribblilng like a basketball

Jungle Jim's picture

Next week is not soon enough, if by "next week" you mean "any time after about early Tuesday morning." It can't happen too soon for me. I need it to happen NOW, tonight, or tomorrow! Let the walls come tumbling down! Bring it on! Die, Douche Bank, die! Die, global financial system, die!!

I ’gin to be aweary of the sun 
And wish the estate o’ the world were now undone.
Ring the alarum bell! Blow, wind! Come, wrack!
At least we'll die with harness on our back.

-- Macbeth, Act V, Scene 5


ebear's picture

"Next week is not soon enough, if by "next week" you mean "any time after about early Tuesday morning." It can't happen too soon for me. I need it to happen NOW, tonight, or tomorrow!"

Short dated puts, eh?  Those will get you every time.

So It Goes's picture

Thank you Jim.

There is nothing new under the sun.  If you know the culture (unlike our so-called illiterate elites) the coming blow up may have been avoided, or at least lessened.

Jungle Jim's picture

Whatever is happening with Douche Bank & Friends, it's not making gold go up, or silver either. That's the bottom line for me. I hope ALL stocks go to zero.

MaxThrust's picture

If I had a dervative contract and DB was the counter party and this contract was "in the money", even by a small margin . I would be taking my money off the table right now. Thoes that wait will be the ones that will wait for ever.

DB is Lehman Brothers and it is going to cause havock. Merkel will bailout DB and bring down the EU in the process.


Merel callling Lord Rothchilds: I need some advice.

So It Goes's picture

DGP is a derivative ETN - 2X gold but is a note held by Deutsch Bank.  If you are holding this note thinking that you are betting on the performance of gold - even if gold goes to the moon, Deutsch Bank won't pay you.

Get out, get out, get out while you can.

big-data's picture

There is a bigger elephant in the room than DB, it is the sovereign bond bubble which sits under ~USD 1 quadrillion in interest rate and FOREX rate derivatives. This is a complete analysis of the biggest asset bubble in history and shows the bubble's vulnerabiity points by network analysis. Enjoy!

SilvaDolla's picture

That Gray Swan article was utterly fucking terrifying.

I don't always take a xanax at bedtime...
But when I do, it's because that article was intensly fucking terrifying.


What a fantastic paper. Thank you for sharing, big-data. Best paper I have seen to date on the impending implosion.



OurUnitedStates's picture

Wow, that was a really well written article. Thanks. (Prevailing Gray Swans)

Flatchestynerdette's picture

Thank you for the Original Post Secular Investor...

.....and for the Prevailing Gray Swans link in the comment which was interesting.

geno-econ's picture

Armstrongeconomics chart looks like a popcorn machine when it reaches the popping temperature---all the banks will begin popping in unison  for lack of liquidity and collapse in credit confidence on a global scale with not even the FED able to lower the temperature or fill the massive liquidity requirements.   It is called a liquidity trap for institutions, no letters of credit for businesses and a bank run for individuals.  The pyramid at some point will begin popping.  Deutsche Bank may be the first kernal followed by many other banks, asset bubbles and stock valuations.

GreatUncle's picture

about why the market thinks a $5.4B settlement would be good news.

Rumour on that is that it was put out just to stop a bank run that was already beginning.

Also those hedge fund people going back? Well would you?

Then last week a substantial loss is now occuring of those choosing to play safe and bank elsewhere so expect the current position to be down.


Nobodys Home's picture

$600 trillion in derivatives in the world......No worries.

By the time our great grand children are dead it'll be all cleared up! :)

jcdenton's picture

Actually, it can be solved quicker than one thinks ..


Of course, first there must be collapse ..


No stopping that ..


It's like the fall of the USSR ..


It was inevitable ..


But rather than death via 1000 cuts, and risk nuclear war ..


It was accelerated with a plan for immediate remedy ..


Those people that put that plan in action (1990) ..


Came up with it 35 years ago this December ..


2 men on that task force, were OSS agents in WW2 ..


Both later would become DCI ..


Together with a  former DDCI and Amb. to the U.N., and a former U.S. AG ..


They all recommended the only living person today from that task force ..


People that thought he was dead 20+ years ago ..


Like former VP Al Gore, learned otherwise via a direct phone call in '94/95 ..


To be frank, it is closer to quads in derivatives ..


None of that can be repaid ..


It is all bets in a casino ..


If I win a $100 T bet, whose going to pay me?


Who CAN pay me?


These derivatives are asinine ..


They were thought up in the first place, to replace real collateral for purchase of prime bank guarantees ..


The person of interest ..


The sole living member of that task force ...


Was at the meeting ..


He was a primary seller of the those prime bank guarantees ..


The coming documentary will explain this in detail ..


Most of this has been declassified in the past decade ..


This remedy has been in planning for the last 3+ decades ..


Putin was there ..


He's part of the mix ..


As explained twice in the provided playlist ..


(Geez! I just got an email from Linkedin. Asking if I want to connect with one of the founders of Delta Force. Yes, 1st Special Forces Operational Detachment-Delta - 1st SFOD-D. He's a connection and working partner with the person of interest, and a former Pentagon official in counter-intelligence. Of which I'm connections with both.)

j0nx's picture

Add about 10 greats to that and maybe. Maybe.

Sandmann's picture

Achleitner's 60th birthday party is this weekend in Seefeld in Austria with banking royalty in attendance. DB has 7800 lawsuits to deal with. The Banks are zombies and ready to take down Western civilisation as they implode

Dr. Spin's picture

Yes, eating too much "feelthy lucre" will do that to you.