Moody's Warns Deutsche Bank Is Dangerously Close To Falling Below Its "Default Point"

Tyler Durden's picture

Authored by Rupert Hargreaves, originally posted at,

Moody’s Capital Markets Research issued a damning verdict on Deutsche Bank earlier this week. In a research report put together by the credit agency’s ‘Analytics’ research division, Moody’s analysts write that Deutsche Bank expected default frequency remains at one of the highest levels in the banking industry, despite the bank’s efforts to shore up its capital position.

In the report, Moody’s cites its Expected Default Frequency measure, which is a continuous measure of a firm’s default risk. The firm’s one-year EDF measure increased from 1.05% in January to its all-time high of 2.85% on February 9. Since then, the EDF measure has declined somewhat, but remains volatile, reflecting Deutsche Bank’s lingering financial problems. At present, the company’s current EDF measure is a 1.39%, which is still significantly above the Global Banks and S&Ls group’s optimal threshold level as calculated by Moody’s. The optimal threshold or value at which firms in the Global Banks and S&Ls Group should be flagged for additional review is 1.22%.

deu-3 Deutsche Bank

Deutsche Bank Is Dangerously Close To Falling Below Its “Default Point”

There are two key takeaways from the EDF measure of 1.39%. Firstly, only 15% of companies in the Global Banks and S&Ls group have an EDF measure above this level suggesting that, compared to the rest of the global banking industry, Deutsche’s default risk is relatively high. That being said, the second key takeaway is the fact that Deutsche’s EDF is only slightly above the trigger level, implying that the firm is not facing imminent risk of default but requires close monitoring.

deu-2 Deutsche Bank


Moody’s report on Deutsche’s default risk says a lot more about the wider banking sector in general than it does about Deutsche. Indeed, there are 1,323 firms in Moody’s Global Banks and S&Ls universe but despite challenges such as low or negative interest rates, tougher regulations, and weak economic growth, only 15% have an elevated default risk (according to calculated EDF’s), and only 21 financial firms in the group are currently showing a downward sloping EDF curve. EDF curves, which compare a company’s default risk to its peer group, are generally upward sloping in economic expansions.

Still, Deutsche’s rising EDF metrics says a lot about the bank and its financial stability, as Moody’s explains:

The sharp increase in Deutsche Bank’s EDF measure can be understood in terms of the two key drivers of EDFs, market leverage (financial risk) and asset volatility (business risk). In contrast to some black-box statistical models of credit risk, the drivers of the EDF model draw on the fundamental approach to credit analysis while supplementing it with market information. Studying these EDF components reveals that Deutsche Bank’s high and volatile EDF measure is primarily caused by an increase in the default point and a decline in the market value of assets, which increased the firm’s market leverage. Market leverage summarizes a firm’s financial risk and is defined as the ratio of a firm’s default point to its market value of assets (expressed as a percentage). Unlike book leverage, market leverage reflects the forward-looking views of investors. One can view changes in the market value of a firm’s assets as investors’ collective view on the expected profitability of a company: when the market value of assets goes up, investors expect future cash flows to increase. The opposite is true when the market value of assets goes down, as in the current case.”

Deutsche’s risk has been steadily increasing since 2008, as the bank’s mounting losses and legal issues increase financial and business risk.

deu-1 Deutsche Bank

The bank’s market leverage, the ratio of a firm’s default point to its market value of assets, is in the 96 percentile, “making it one of the riskiest banks by that metric.” In fact, leveraged loan Deutsche is dangerously close to falling below its current “default point”.

“Since June 2008, Deutsche’s market value of assets has dropped by about 35% from $2.3 trillion to its current level of $1.5 trillion, significantly closer to its current default point of $1.4 trillion. Historically, when a firm’s market value of assets falls below the default point, it is highly likely that the firm will be unable to sell assets or raise additional capital to pay its creditors.”


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dimwitted economist's picture

Good thing for our Powerful Economic REcovery here in the u.s.

2.9% GDP BABY!!!!!

Raising those Rates VERY SOON!!!!!

Go Hillary Go!!!!!!

remain calm's picture

Its OK because every CB will defend the instutution that can bring down the global financial system> It's the swan the they have no fucking idea is going to go Kaboom that causes mahem

Soul Glow's picture

Right like when the major banking houses threw Lehman to the wolves.  Ha!

SomethingSomethingDarkSide's picture

ATH's and engine's numbers 3 thru 5 are on fire..

Hopefully this Airplane doubles as a Glider!

Jim Sampson's picture

It's going to be a Merry Christmas folks!  And a Happy New Year!

brockhardman's picture

That bank is already insolvent.  Default happened long ago.

Déjà view's picture

Moody'$ has U.S. rated at some more Aaa MBS?

DetectiveStern's picture

Ex head of Goldman choosing Goldman's biggest rival as the one bank to go bust...


Lehman was not thrown to the wolves in so far as Fuld opened the door to the wolves when he purchased way too much land in Bakersfield Californication, and called it McAllister Ranch, and hoped beyond reason that he could leverage to the tits, and sell 2 acre estate lots to the Greater Fools than himself.

Dirtnapper's picture

Unless of course, BIS and it's front groups IMF/WB benefit from a full blown collapse. They would never want a new world reserve currency that they would control, would they?

Doppelganger71's picture

Burn baby burn.............................

LawsofPhysics's picture

LOL!!!  Please banks don't default anymore, the taxpayers do!!!!

Forward Soviet!!!

MsCreant's picture

Yeah, this fiction makes me laugh. They have suspended the rules for any kind of real accounting all over the globe. It is not dangerously close to default, it should have defaulted probably in 2007.

Kid: "Look Daddy, all the little Ponzi scams stacked up all into pretty little pyramids with big fat bankers balanced on them above!"


ZH Daddy (played by Tyler): Unleash the black swans!



RadioFlyer's picture
RadioFlyer (not verified) MsCreant Oct 28, 2016 10:37 AM



fixed that for you.

Macavity's picture

"They have suspended the rules for any kind of real accounting all over the globe."

What do you mean?  Help me learn.

MsCreant's picture

Look into FASB. Those are reporting rules that were suspended in 2007/2008 during the banking crisis so that no bank would have to declare that they went BK. No one reports, no one goes down, you do not have a global margin call and falling domino effect. The suspension of FASB reporting was supposed to be lifted a couple years later and they decided not to lift it but keep it in place. That was the tell that we were still in a hell of a lot of trouble and they were lying to us about recovery. They also do currency swaps with each other. When one currency goes down, a more powerful currency country can dump a shit load of their own into the weaker country and take a shit load of the weaker country's currency. That can stop the drop and level them out. 

I could say so much more, there is something they do called sweeps, all kinds of accounting/lies you can get away with in a moving system. The point is without clear and transparent accounting, while the music is playing, you don't know who really has what. When the music stops, you are holding what you are holding. 

The only way to be sure of winning is not to play. Playing, mostly, is not an option.

bugs_'s picture

Well if Moody's finally gets around to saying so the DB lehman moment must be very close indeed if not yesterday.

buzzsaw99's picture

if moody's says it that is only because goldman sachs and warren buffett want them to say it.

MsCreant's picture

Damn straight. This is fictive, someone trying to move a Jenga block without knocking the tower over so they can build the Ponzi higher.

buzzsaw99's picture

but for a fee moody's will stamp them AAA...

Herdee's picture

We're on the edge of recession,if not already there.

MsCreant's picture

Eh hee, hee, hee, hee, hee, hee, hee.

Ah, haa, ha, ha, ha, ha, ha, ha, ha.

Stop it, my sides are killing me!

Eh hee, hee, hee, hee, hee, hee, hee.

Ah, haa, ha, ha, ha, ha, ha, ha, ha.

Infield_Fly's picture
Infield_Fly (not verified) Oct 28, 2016 9:56 AM

Moody's sad a baddie - fire the CEO


All is good - just read it in the LUGENPRESSE!!

Sky flyer's picture

I don't want to see another ZH douche bank article until their bankers are jumping out windows. Enough already.

Soul Glow's picture

You should get outside and get some air then.

SomethingSomethingDarkSide's picture

Squeeze the shit out of a tennis ball - this ball game's got extra innings for its extra innings.

Soul Glow's picture

Bear Sterns is fine!

GunnerySgtHartman's picture

And there are no problems at Lehman!

MsCreant's picture

That my friends, is because it is contained (Brought to you by a Central Banker).

FEMA Resident's picture

Everytime they say this or something similar, someone manages to pull a 'Rabbit out of the hat'. 

LawsofPhysics's picture

"someone manages to pull another trillion out of a computer" - FIFY

MsCreant's picture

"someone manages to pull another trillion out of our collective asses" - FIFY

DuneCreature's picture

This is a must see interview if you want to understand bank bad behavior and what it is doing to society. ....... This is about HSBC but I'm sure it could be applied to Wells, JPM, Goymman or Douche Bag Bank they do the same sort of nefarious stuff.

After all, banksters all hit the same cocktail lounges at Happy Hour and I'm sure they sit around trading 'rip-off' ideas and methods. .... They probably make a contest out of seeing who can steal the most booty each month. .......................... Bank on it actually. ... I know crooks.

HSBC Whistleblower - John Cruz

Live Hard, Notes On Napkins Have Made Barmaids Small Fortunes, Die Free

~ DC v3.0

JailBanksters's picture

The only ones getting stressed over this are other bankers.


BrigstockBoy's picture

And what does munificent Uncle Warren have to say about Deutsche Bank with their WMDs? Another satanic globalist asshole with his finger on the trigger...

Savvy's picture

I have no money in the bank and I have no investments in the stock market. But I do have a gov. that will seize all my possessions and put me in prison if I don't pony up for the banks and the stock market.

That's fucked up.

DontFollowMyAdviceImaDummy's picture

sigh, and what pisses me off is THEIR STAWK KEEPS RISING! $14.61 n climbing... i'm starting to believe their insolvancy will never come to light 

1777's picture

Are you telling me the insolvent fractional reserve bank is close to the 'Default point'?

WHOA! I just got really dizzy.....LMAO


"Hank, it's not a matter of cash, it's a matter of perception." Richard 'the dickhead' Fuld aka 'The Gorilla' of Wall Street

wstrub's picture

How to get the Zeuro to par with the US in one easy step.

jubber's picture

Deutsche obviously down, oh it's at HOD LOL

rosiescenario's picture

The good news & the worse news:


Good that DB should be fined $14 billion for their criminal activity.


Worse.....our corrupted DOJ will re-direct the fines to various left wing political groups of Obama's choosing, per this CNBC vid:

TheVoicesInYourHead's picture

...and of course douchebank shares soar on the news!

Bopper09's picture

Jim Willie warned me of this 2 years ago.