Gundlach: "Deutsche Bank Will Be Bailed Out But What About Credit Suisse"

Tyler Durden's picture

Last Thursday, when Deutsche Bank was flailing ahead of the now confirmed fake report of a reduced settlement with the DOJ, Reuters spoke to Jeff Gundlach about his thoughts regarding the German lender, his advice was simple: don't touch it. "I would just stay away. It's un-analyzable," Gundlach said about Deutsche Bank shares and debt. "It's too binary." Gundlach said investors who are betting against shares in Deutsche Bank might find it futile. Maybe, but not if they cover their shorts before the max pain point, something which the market - where equity/CDS pair trades now allow a "go for default" strategy - will actively seek out.

"The market is going to push down Deutsche Bank until there is some recognition of support. They will get assistance, if need be."

What happens then? "One day, Deutsche Bank shares will go up 40 percent. And it will be the day the government bails them out. That jump will happen in a minute," Gundlach said. "It is about an event which is completely out of your control."

The very next day his forecast was proven largely accurate, when DB soared some 25% from its overnight lows on, if not a bailout, then a report of a potentiel reprieve, even if the report ultimately ended up being wrong.

Then, earlier today, during the Grant's Fall 2016 investment conference, Gundlach once again discussed the troubled German bank and said that “you cannot save your faltering economy by killing your financial system and one of the clear poster children for this is Deutsche Bank’s stock price,” Gundlach, 56, said at Grant’s Fall 2016 Investment Conference on Tuesday in New York. “If you keep these negative interest rate policies for a sufficient future period of time you are going to bankrupt these banks.”

Europe’s banks have seen their value shrink by about $280 billion this year, with Deutsche Bank losing almost half its market value. Germany’s largest lender extended losses after the U.S. Department of Justice last month requested $14 billion to settle a probe into residential mortgage-backed securities, sparking concerns that it will have to raise capital.

Repeating what he said one week ago, Gundlach added that while the Frankfurt-based bank would ultimately be rescued by the German government if needed, other banks in the region wouldn’t be able to count on such support, Gundlach said.

“Deutsche Bank will be supported by Germany if push comes to shove,” he said. “But what about Credit Suisse, which has shown a similar decline in stock price? Who’s there to bail them out?”

As Bloomberg notes, having been largely forgotten in the din surrounding DB, Credit Suisse has lost about 40 percent of its value this year. The Swiss bank raised about $6 billion of capital last year under new Chief Executive Officer Tidjane Thiam to help fund a restructuring plan.

Joining the "other" bond king who earlier today railed against unorthodox monetary policies, Gundlach warned again that negative rates risk undermining the proper functioning of capital markets, and blamed European banking's woes on the ECB's policies.

However, what is a trapped central bank to do: Gundlach pointed out that even the Federal Reserve, which has not cut rates below zero, is seeing signs that its policies aren’t working. Gundlach has said that interest rates bottomed in July and that the market is looking for signs of fiscal stimulus and accelerating inflation. He’s predicting that rates on the U.S. 10-year bond may surpass 2 percent by the end of 2016. Which may explain why Gundlach told the Grant's confernce audience that for the first time in years, he favored TIPS, which he has in the CORE fund, over nominal Treasuries.

"For the first time in years, I am long TIPS," he said.

In a separate interview with Reuters, Gundlach added: "Implied future inflation priced into TIPS is low, too low for the environment likely to unfold over the next decade. Nominal Treasuries are likely to underperform TIPs over an institutional investment horizon."

While his inflationary bet may be premature, investors don't seem to think so: DoubleLine posted a net inflow of $444.4 million into its open-end mutual funds in September, marking the Los Angeles-based firm's 32nd consecutive month of inflows, while the $61.8 billion DoubleLine Total Return Bond Fund, the largest fund by total assets of the DoubleLine Funds, had a net inflow of $190.9 million in September, for a year-to-date net inflow of $8.3 billion.

Comment viewing options

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

The Grant's Conference today was excellent.


Jtrillian's picture

What about HSBC?  What about RBS?  What about JPM, BAC, and C? 

What did you think was going to happen when "too big to fail" banks bad behavior was rewarded?  Do you still think any of those so-called "stress tests" will hold water? 

We're going to find out the answers to all of these questions soon enough. 

Long popcorn

GUS100CORRINA's picture

YES ... the entire system of GSIBs is a MESS ... some more than others. I would also add the Italian banks to the list oif troubled institutions.



Creative_Destruct's picture

"A money-center bank here, a money-center bank there and pretty soon you're talkin' real money"

Kabissa's picture

Those phony "tests" are designed to hold solely their profits.

new game's picture

carmelized for max enjoyment...


pathosattrition's picture

Flee while you can.

Clock Crasher's picture

Is CS the custodian of TVIX? In that case no they will not be bailed out and TVIX lottery winners will have to eat a shit sandwich.

We Are The Priests's picture

As my Father used to say, "Yeah, well..if you hadn't stopped to watch the hare take a shit you would've seen the turtle win the race."

Yeah, I don't know what the hell it means either, but it seemed appropriate here.

blue51's picture

Oh...a dad from that generation like mine ? Did your father get you to try and find the camel in the circle with the pyramid , on the 1$ bill ? After I was looking for 20 minutes or so , he finally says, " it's behind the pyramid dropping  a shit " .

Nobody For President's picture

And my favorite from my Dad, maybe really appropriate for today's Euro banks:
'Never look a gift horse under the tail'.

Reichstag Fire Dept.'s picture

DB was bailed out today...who bought all that stock to keep it afloat while monkey-hammering gold?

We Are The Priests's picture

Joint venture between JPM and the ESF

blue51's picture

The 9$ TRILLION taken from the US/ Pentagon , isn't just collecting dust in a closet somewhere.

We Are The Priests's picture

No, no, no.  That money is going to pay for all the sex change operations our military personnell so desperately need.

Duc888's picture



I got a better idea.  Take all the assets of the boardmembers, clawback, then their families.....clawback.  Then jail time for fraud.

Billy Shears's picture

Must have misunderstood ZH's criticism of DB all this time. According to my "reading" ZH has regularly, even if tacitly, suggested DB "balance" sheet would swallow Germany whole? Guess I got it wrong, again; what else is new...

King Tut's picture
King Tut (not verified) Billy Shears Oct 4, 2016 8:47 PM

"The"  "CDOs"  "are"  "where"  "the" "danger" "lies" "with" "DB"

King Tut's picture
King Tut (not verified) Oct 4, 2016 8:43 PM

TIPS as the world is facing a deflationary death spiral? 

yogibear's picture

Credit Suisse will be bailed out as well. The Federal Reserve and ECB willl not allow a major bank to fail.

No matter how how many trillions it takes.

Tremel Jackson's picture

Comey to keep the momentum going by granting DB $14 billion in immunity.

RaceToTheBottom's picture

"you cannot save your faltering economy by killing your financial system "

I beg to differ.  

We can nationalize the major functions of the banks, sell the remainder functions to their competitors at full price under threat of removal of their 0% window.  Put the top layers in jail and buy some utility managers to manage the remainder that was nationalized.  

In a few years after recovery of the criminal WS mess sell off the nationalized banks to the now more ethical criminal WS which now must operate regionally.

Any actions less are WS apologists....


jm's picture

Things that he says don't seem to make as much sense as they used to.

If you expect banks to shrink balance sheets, why would you expect TIPS to outperform nominal securities?

Whatever... nobody knows what is going to happen, he's diversifying to catch some tail risk, just go with it.

Atomizer's picture

Credit Suisse, Deutsche Bank, Wells Fargo, Bank of America have no fiduciary responsibility to hold you as a debtor rather than a bank creditor to wheel in Derivatives horseshit. 

How many fucking times does this take to sink in? Why not give me your money to speculatively whores and end up broke. I wouldn't do this to you. Trying to explain the truth. America comes first.

Mustafa Kemal's picture

just spoke to a german friend and he told me that he doesnt think the germans will tolerate a bailout for DB. Moreover, he said that during a bailout in Germany, the depositors are insured under two different insurances, which unlike FDIC with Dodd-Frank, actually do insure the deposits (up to a certain, somewhat large, amount)

nobita's picture

It seems all EU countries has a €100k insurance. Germany might be higher but the details are unclear according to wikipedia.

Personally I agree with Gundlach that DB will be bailed out. It is just too much uncertainty over what will happen if the worlds most important bank fails. The details of such a bailout is the real question. It would have to be packaged in a way that the German public accepts it. That probably means shareholders getting slaughtered (bondholders too?) and top management all getting fired and replaced with government appointed caretakers. Bonuses will be scrapped and high earners might have to take a wage cut as the are now public servants, divisions of the bank will be sold off in order to make the bank more manageable in size. 

GreatUncle's picture

Makes no difference ... the global economy is a train wreck waiting to happen, junking a carriage or 2 will not stop the train wreck.

DB collapses, propped up by throwing money at it, problem is all that now supported value will cost how much per year to keep it all going?

Then you wonder why Japan is in the shit it is for around 20 years it has been supporting banks that should have gone bust. The cost was every year they added into the system a malinvestment to keep them from busting instantly making that value fucking shit in the process. Notice how it is only months now between Japanese intervention into its markets to keep it going? Not getting easier, it gets worse.

Now if you look at the global economy take all the increase in value since 2008 and appreciate that is how much worse we have made the system DB is just the tip of the iceberg. Stagnation or bust take your pick and in both cases it will be crap. Why this value, the global economy has not expanded by material volume it has been by inflated values to support an inflated debt.

That is what minimum wage is used for, inflate value to support the ever increasing debt and look at the value twats quote on that now $15 an hour? Just another one of the signs.

All the haircuts, wage cuts, bail in are all to support the bad debt and without expansion economically your real economy contracts as more and more is required to service the ever growing debt. Till one day ... poof it is gone ... CB magic treat ... that inversely correlates to poverty with no work or a job.

Just bust the fucker.


Coldfire's picture

Yes German deposit insurance is orders of magnitude greater than FDIC insurance. But it is just as thinly underwritten. It's an illusion.

cluelessminion's picture

Credit Suisse?  You mean there's another one!!

SoDamnMad's picture

Look at the interconnection charts that have been posted recently. So many bank have Yuuge NPL balances.  Italian banks, Spanish banks, Portugese banks and all the small country banks who bought German stuff thinking they were buying AAA paper.  Hell,even Norway is dipping into their Soverign Wealth Fund ( and pretty heavily I believe). And for those like my wife who aren't following this, THINGS AREN'T GETTING ANY BETTER.

Ms No's picture

I am buying more gold tomorrow.  At the latest, after this election we are probably screwed. 

Batman11's picture

We haven’t got bankers off their Government crutches of TBTF.

Bankers need to be bought into the capitalist system and weaned off their socialist tendencies.

They need to learn to stand on their own two feet in the global market place and when they fail, they fail.

It is time for the boys to become men.

Bankers will find the creative destruction of capitalism very frightening at first and many will be reduced to tears at the prospect, but they need to grow up.

Capitalism will make banking become streamlined and efficient.

In 2008 we discovered Wall Street was the weakest link in the global economy, which is hardly surprising when it is a throwback to old socialist ways of doing business.

Banking needs capitalism.


Batman11's picture

Deutsche Bank is the world number one in derivatives

Letting bankers mess about with anything even remotely complex is a recipe for disaster.

Before 2008, bankers told us that derivatives made the system safer by spreading risk through the system.

After 2008 we found:

James Rickards in Currency Wars gives some figures for the loss magnification of complex financial instruments/derivatives in 2008.

Losses from sub-prime - less than $300 billion
With derivative amplification - over $6 trillion

"It’s nearly $14 trillion pyramid of super leveraged toxic assets was built on the back of $1.4 trillion of US sub-prime loans, and dispersed throughout the world" (“All the Presidents Bankers”, Nomi Prins)

How do bankers fare with their bread and butter product, debt, which has been around for 5,000 years.

Surely they understand that?

“What is wrong with lending more money into real estate?” Australian, Canadian, Swedish, Dutch and Hong Kong bankers now

“What is wrong with lending more money into the Chinese stock market?” Chinese banker last year

“What is wrong with lending more money into real estate?” Chinese banker pre-2104

“What is wrong with lending more money into real estate?” Spanish banker pre-2012

“What is wrong with lending more money into real estate?” Irish banker pre-2010

“What is wrong with lending more money to Greece?” European banker pre-2010

“What is wrong with a NINA (no income, no asset) mortgage?” US banker pre-2008

“What is wrong with lending more money into real estate?” US banker pre-2008

 “What is wrong with lending more money into real estate?” Japanese banker pre-1989

“What is wrong with lending more money into real estate?” UK banker pre-1989

“What is wrong with lending more money into the US stock market?” US banker pre-1929

“What does prudent lending mean anyway?” a typical banker.

Letting bankers mess about with anything even remotely complex is a recipe for disaster.

julian_n's picture

As I warned here last week - CS is also not in a good way.

I have an account with them that I am trying to close and take funds elsewhere - and they have now just "lost" the paperwork and seem to be doing all in their power to prevent me closing the account.

Last of the Middle Class's picture

Not going to bail out Douche bank? Right. Word gravy for the terminally stupid.

zippy_uk's picture

"We're gonna need a bigger bailout"

TomGa's picture

Isn't it illegal under EU law for any national government to bail out a banking institution?