Deutsche Bank “Is Probably Insolvent”

GoldCore's picture

Deutsche Bank "Is Probably Insolvent"  by Tim Price

This is getting to be a habit. Previous late summer holidays by this correspondent coincided with the run on Northern Rock, and subsequently with the failure of Lehman Brothers. So the final crawl towards the probable nationalisation of Deutsche Bank came as no particular surprise this year, but it is tiresome to relate nevertheless.

The 2015 annual report for Deutsche Bank runs to some 448 pages, so one rather doubts if even its CEO, John Cryan, has read it all, or has a complete grasp of, for example, its €42 trillion in total notional derivatives exposure.

Is Deutsche Bank technically insolvent? We’d suggest that it probably is, but we have no dog in the fight, having never either owned banks, or shorted them. And like everybody else we assume that some kind of fix will soon be in – probably one that will further vindicate exposure to gold, both as money substitute and currency substitute. Professor Kevin Dowd, asking whether Deutsche Bank ist kaputt, suggests that the bank’s derivatives exposure is difficult to assess rationally; the value of its derivatives book

“is unreliable because many of its derivatives are valued using unreliable methods. Like many banks, Deutsche uses a three-level hierarchy to report the fair values of its assets. The most reliable, Level 1, applies to traded assets and fair-values them at their market prices. Level 2 assets (such as mortgage-backed securities) are not traded on open markets and are fair-valued using models calibrated to observable inputs such as other market prices. The murkiest, Level 3, applies to the most esoteric instruments (such as the more complex/illiquid Credit Default Swaps and Collateralized Debt Obligations) that are fair-valued using models not calibrated to market data – in practice, mark-to- myth. The scope for error and abuse is too obvious to need spelling out.”

[As Compass Point's Charles Peabody exclaims "I defy any analyst to tell me what that {derivative} portoflio is worth."]


Watching ‘The Big Short’ again over the weekend, it seems as much like the shape of things to come as a witty, if poignant, documentary about a historic failure of common sense. Nobody learns anything. It is eight years since Lehman Brothers failed, and the financial system, especially in Europe, would seem to be in no better shape now than it was back then, going by the health of some of the region’s major banks, and also Barclays. This also means that of this correspondent’s quarter century career to date in asset management, at least a third of that period, and probably closer to a half, has seen the industry in a state of acute crisis. The universal onset of crisis fatigue amongst market participants may, then, account for the mood of general complacency that has so far accompanied Deutsche Bank’s slide towards insolvency if not yet outright irrelevance.

“Never let a good crisis go to waste,” Winston Churchill allegedly said. But Europe, for one, squandered all of those eight years. This is just one of many reasons why we voted Out. With luck the UK will manage to extricate itself from the EU chamber of horrors before the roof finally falls in.

On the fifth anniversary of Lehman Brothers’ bankruptcy, itself six months after the bail-out of Bear Stearns cited in the transcript above, Michael Lewis, author of the original ‘Big Short’, was asked in an interview with Bloomberg BusinessWeek whether he thought the company had been unfairly singled out when it was allowed to fail (given that every other investment bank would then be quickly rescued, courtesy of the US taxpayer).

His response:

“Lehman Brothers was the only one that experienced justice. They should’ve all been left to the mercy of the marketplace. I don’t feel, oh, how sad that Lehman went down. I feel, how sad that Goldman Sachs and Morgan Stanley didn’t follow. I would’ve liked to have seen the crisis play itself out more. The problem is, we would’ve all paid the price. It’s a close call, but I think the long-term effects would’ve been better.

We happen to agree... and it appears so do the professionals... (See CDS chart above)

*  *  *

A month from now, we’ll publish our new book: ‘Investing Through the Looking Glass: a rational guide to irrational financial markets’. It covers en passant the Lehman crisis, of course, but also the much wider financial landscape: a multi-decade bubble in debt for which Deutsche Bank may yet serve as the terminal pin, the fundamental and seemingly intractable problems with bankers, central bankers, economists, fund managers, and the financial media. Few prisoners are taken. Few deserve to be. Lest this sound like a counsel of despair, ‘Investing Through the Looking Glass’ also offers practical and pragmatic suggestions for protecting and growing scarce investor capital amid the concurrent waves of deflation and inflation crashing against one of the most challenging financial environments that anyone alive has ever seen.

Tim Price is a London-based wealth manager and editor of Price Value International. This article was published on Sovereign Man and edited by Zero Hedge


Gold and Silver Bullion - News and Commentary

Pound Tumbles to Three-Decade Low as Angst Over Brexit Persists (Bloomberg)

Options market is betting on further declines for Deutsche Bank shares (CNBC)

Gold holds losses on firm dollar after positive U.S. data (Reuters)

Gold Holds Last Week’s Decline as Deutsche Bank Concerns Ebb (Bloomberg)

U.S. construction spending falls in headwind for third quarter GDP (Reuters)

Gold Might Rally By 50% (SeekingAlpha)

Deutsche Bank Stock Reopening Bounce Fades As CDS Hit Record Highs (ZeroHedge)

Summers Floats Idea of Sustained Government Stock Purchases (Bloomberg)

Coming: The Next Recession (MauldinEconomics)

Recession Is Coming -- Heed This Advice From Mid-Market CEO Convention Speakers (Forbes)


Gold Prices (LBMA AM)

04 Oct: USD 1,309.15, GBP 1,026.90 & EUR 1,172.21 per ounce
03 Oct: USD 1,318.65, GBP 1,023.40 & EUR 1,173.99 per ounce
30 Sep: USD 1,327.90, GBP 1,025.01 & EUR 1,187.67 per ounce
29 Sep: USD 1,320.85, GBP 1,016.92 & EUR 1,177.14 per ounce
28 Sep: USD 1,324.80, GBP 1,020.10 & EUR 1,181.06 per ounce
27 Sep: USD 1,335.85, GBP 1,031.01 & EUR 1,187.84 per ounce
26 Sep: USD 1,336.30, GBP 1,033.23 & EUR 1,188.91 per ounce

Silver Prices (LBMA)

04 Oct: USD 18.74, GBP 14.68 & EUR 16.78 per ounce
03 Oct: USD 19.18, GBP 14.89 & EUR 17.07 per ounce
30 Sep: USD 19.35, GBP 14.92 & EUR 17.33 per ounce
29 Sep: USD 19.01, GBP 14.61 & EUR 16.95 per ounce
28 Sep: USD 19.12, GBP 14.69 & EUR 17.05 per ounce
27 Sep: USD 19.42, GBP 14.99 & EUR 17.26 per ounce
26 Sep: USD 19.44, GBP 15.04 & EUR 17.29 per ounce

Recent Market Updates

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- Why Krugman, Roubini, Rogoff And Buffett Hate Gold
- ECB Refused “To Answer Questions” – Deutsche Bank “Systemic Threat” Is “Not ECB Fault”
- Euro “Might Start To Unravel” If Collapse Of Deutsche Bank
- Do You Really Own Your Gold?
- “Gold Will Likely Soar To A Record Within Five Years”
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- Gold Up 1.5%, Silver Surges 3% – Yellen Stays Ultra Loose At 0.25%
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- Buy Gold – Bonds Are ‘Biggest Bubble In World’ – Billionaire Singer Warns

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THE DORK OF CORK's picture


Perhaps the greatest exchange (one sided) in our little parliament.

Again a central bank bill crept in at summer recess.


These guys have certain techniques...... 

Read it and weep for little Ireland.

JailBanksters's picture

It's a zombie bank, keot alive by it's zombie account holders and it's remaining zombie shareholders thinking it will get better, it will get better.


Erek's picture

Since when is gold a "money substitute"?

Rumple4skin's picture

"The murkiest, Level 3, applies to the most esoteric instruments (such as the more complex/illiquid Credit Default Swaps and Collateralized Debt Obligations) that are fair-valued using models not calibrated to market data – in practice, mark-to- myth"

I just love the 'mark-to-myth' analogy. It would seem that only the general public can see the wood for the trees and guesses that transactions relating to 'financial instruments' are very likely to go wrong. All the economists and bankers have their heads buried in insignificant detail and always seem stunned when the ordure hits the fan........

Sandmann's picture

Did Sterling collapse ? Wasn't it simply a dirty float ? Maybe it will look strong when the Euro collapses ? Should the UK say nada to the F-35 import bill now the dollar is strengthening ? The Eurofighter production run is coming to and end and German plants will be shut down - looks like cutting coat according to cloth is the new order of the day

khaproperty's picture

All systemic banks in the world are "probably" insolvent we may assume. That means nothing. Only one of it should break - all others would suffer. Indeed EU-banks are more shaky because of the dirty Euro and the desasterous Union.

Sandmann's picture

Euro is a disaster but so is the Dollar. The US Dollar was the currency for people living between Canada and Mexico. It simply should not be used outside the USA

RaceToTheBottom's picture

Why are US based banks viewed as somewhat repaired?

Is it because the US FED printed trillions of $ for the banks and gave it free for their ratios to be repaired?

If so, why was that magical shenanigans not used on the Europe banks?

zippy_uk's picture

Just put the right DB branded spread sheet infront of the regulator - it will be alright on the night...

DaNuts's picture

By "esoteric instruments" Professor Kevin Dowd clearly means fakery, lies and deciet. Let's face it, honesty is not any banks strong point is it?

Boris Alatovkrap's picture

"Probably Insolvent"? No, by way of fictional reserve banking, Douche Bank, like Bank of Amerikansky (BofA), Hell is as Far as you Go (WF), Chase other people money (JPM), Schiti (Citi) etc., all member of Central Bank Cabal is illiquid, like skanky excrement gather at bottom of septic tank.

jcdenton's picture

Boris, you're unique ..


Had any fine vodka with Putin lately?


Allow me to to respond to you as I also respond to the OP ..


First off, you mention the phrase -- Douche Bank ..


I suggest you're not the first to coin and make generous use of that ..


DB certainly does not owe you a red cent ..


[Pun intended: "red" cent]


I'm going to suggest something is going on here, not most eyes wish to see ..


To do this, requires more space than available here ..


So, I responded in kind directly to the OP at his parent site thus ..


I posit as Klaatu Fabrice Aquinas


Jane Sheppard's picture

Hey guys. We developed all these financial weapons of mass destruction, put no limits on them, bought/hired all the regulators, designed the exchanges like a 2 year old so we can HFT to the femtosecond for no practical reason other than to fleece everybody (because owning a stock for that infinitesimal amount of time is doing god's work). We set the margin requirements abysmally low, when they should've always been 100%, so when our sophisticated financial "models" (read fairy tales) fail it unravels the entire system. This provides a pathetic excuse for the politico-shills to bail us out and fake-pretend they're our friends robbing us all to safety. We created this minefield on purpose, designed it to play chicken with the collective output of every sheep on planet earth, with innovative, fraudulent, brittleness all by intentional design. We made as many bets as we could the size of the entire world's GDP because without 40X leverage we'd all be irrelevant. We made it so it's mathematically impossible to determine the counterparty risk, because each bank is pointing a loaded gun at every other bank. All we know for sure is the explosion will be epic, probably the size of a supernova.


Every banker wanker ever.