Deutsche Bank Charts a Danger Map For A Crisis Prone And Credit Troubled World

Tyler Durden's picture

Against a background of 30%-plus falls in bank share prices around the world and growing fears of a severe blow to the European bank sector in the event of a sovereign debt default, Deutsche Bank has produced a lengthy tome that answers 'everything you wanted to know about the global banking sector but were afraid to ask'. A compendium of charts and tables, summarized effectively by 'Danger Maps' designed to highlight countries which face greater (or lesser) stresses for their banking systems is further extended into a country-by-country breakdown for developed and emerging markets. While their findings may not line up perfectly with our more global contagion perspective, they do create a systematic framework for judging relative investment opportunities that sees Japan, Australia, Hong Kong, and the Nordics as the least risky; US and UK about average on macro scores; while unsurprisingly (with the exception of Germany) the Eurozone countries have the highest danger scores. Transmission channels are discussed and they make a critical point on bank valuations that earnings estimates are extremely sensitive now to bad debt charges and credit quality assumptions.


While using prior crises as a basis for projection may be a faulty premise, the Deutsche team has done a good job of outlining how key drivers, factors, themes will impact/create winners and losers.


And the Danger Maps (for both developed and emerging nations) are as follows - higher number indicates more risk - which in turn is factored into their name-by-name modeling of financials.


The full document is below but the more focused Credit Strategy article this week indicates Deutsche's view (which remains similar to ours) from a trading perspective, that:

The primary market shutdown has meant that banks are not able to fund long term and given the refinancing needs for Q4 2011 (c.€183 bn) and the next 3 years (€1.5 trn until 2013) we expect term funding to remain stressed unless markets reopen and function normally. And the consequence of this challenge could be deleveraging by banks which is a negative for economic growth. We highlight the redemption schedule on a month by month basis and by security type along with the banks with the biggest redemptions inside the article.


The lack of long term funding has also put the focus on short term liquidity and the stress in the European interbank markets is now inching towards levels last seen at the start of the credit crisis – and this is despite banks actively using the ECB window to fund themselves. Active deposit seeking is a solution that banks could pursue in the mean time to alleviate this funding situation.


Given the recent stock slump and the slowdown in the economy, there are questions about how well capitalised banks are, to withstand any actual losses. The sovereign crisis is in the backdrop and if not contained could cause further losses on balance sheet for banks. This could further impair capital ratios which are already stressed. Given European bank exposures to peripherals, the loss absorbing ability of European banks will continue to remain in focus and we believe the possibility of a recapitalisation wave in case of a sovereign event is very high. The IMF has mentioned a €200bn shortfall and our equity research colleagues estimate €100bn required capital injection to withstand a sovereign event. In this situation, a European version of the TARP is not a far-fetched idea.


Overall, we believe that, although financials spreads have widened significantly and look cheap quantitatively, banks face systemic issues which could keep spreads elevated unless there is a systemic resolution from the authorities.


DB_Global Banking in a Del Ever Aging World

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RobotTrader's picture

Platinum getting totally destroyed.

The big story this week is probably going to be the further decimation of industrial metals prices.

Vampyroteuthis infernalis's picture

Robot, you are still alive. I guess throwing a few jabs at the PM worshipers after they talked all that trash about you.

Ahmeexnal's picture

Rhodium seems to be immune to the meltdown.

Ag is falling to 28.  Hope it goes to 20 so I can load up with both hands.

Sudden Debt's picture

I just read a piece showing the probabilty of silver going down 50% and it made sense now banks and funds are selling the furniture.

At 20 euro per ounce, I'm buying at 15 euro per ounce I'm taking on a loan to buy more :)


Id fight Gandhi's picture

Silver moving multiple standard deviations over several trading sessions does mean down. Which is why you need to be hedged or short the markets if u want to pocket any profit. PMs will soar on money printing, but who knows when that will happen.

I'd be buying more eagles around 25-27 but already have more than enough silver much much lower.

Cliff Claven Cheers's picture

Can anyone explain why gold and silver have dropped so much?

Ahmeexnal's picture

Someone leaked the margin hikes to be announced tomorrow.

Cliff Claven Cheers's picture

Thanks for the reply.


Real classy junking a question. I love these drive by junks who don't have anything to contribute.

MisterMousePotato's picture

I think it's a combination of factors - a Perfect Storm kinda thing:

As the global financial crisis gathers momentum, why has gold dropped 15 percent since reaching a record $1,923.70 an ounce on September 6? Also, silver has plunged the most since October 1979. In two days, gold dropped 9.3 percent, the most since February 1983. The weekly decline of 9.6 percent was also the most in nearly three decades.

These are the possible fundamental causes for the accelerating decline in the price of gold:

1. Exchange Traded Funds (ETFs)

The UBS rogue trader, who caused the chief executive of UBS -- Oswald Gr?bel -- to lose his job over the $2bn black-hole, has accidentally highlighted the problem with ETFs. As the recent ATCA briefing, "Are The $1.4 Trillion ETFs The New WMDs? Anatomy Of The Highly Toxic UBS Scandal" points out:

"Think of all the gold ETFs and then ask yourself: How much physical gold actually underpins the gold ETFs? Answer: Not a lot! As much as half of the trades in gold are now driven by ETFs, while some blame them for speculatively driving up [commodity] prices."

Top gold sources say that some ETFs are involved in fractional selling in ratios of 1:100 and there is only 1 kilo of gold for every 100 kilos of gold-equivalent ETF units which are sold and re-sold. As queries for physical gold repatriation start, gold funds and myriad financial institutions and shadow banking vehicles -- such as prominent hedge funds -- may keel over?

Attention is just beginning to gather on the accounting principles of the popular but tainted gold and silver Exchange Traded Funds (ETFs). The gold inventory is under scrutiny for usage in COMEX -- Commodity Exchange -- deliveries, enabled by questionable shorts to the GLD and SLV shares by its own custodians. The Bar Lists are regularly seen as erroneous and suspicious.

The biggest gold and silver funds are now on the defensive, as they may soon face mass investor exits on the back of heavy discounts to the precious metal spot prices and doubts about the levels of physical gold they actually hold.

2. Paying for Losses and Booking Profits

There is clear evidence that investors are selling gold to pay for massive losses in other asset classes like equities and commodities. In parallel, many investors have made a solid profit in their gold-linked investments. As the markets crash and there is a need to find ready cash and report profits, it is easier to do so by selling their hitherto profitable gold positions.

3. Source of Liquidity and Margin Calls

Gold has become the source of liquidity for global margin calls. It is difficult to say at what level this liquidation will stop. COMEX -- Commodity Exchange -- is making it more expensive for speculators to trade. CME -- Chicago Mercantile Exchange -- Group has increased the margin requirements on gold and silver. The minimum cash deposit for gold futures will rise 21 per cent to $11,475 per 100-ounce contract in the speculative Tier 1 category at the close of trading on September 26, Chicago-based CME has said. For silver, the minimum cash deposit has been raised to $24,975 from $21,600.

4. Flight to Cash

We are seeing a flight from illiquidity to liquidity, ie, from all asset classes -- including precious metals -- to cash because 2008 is still very fresh in people?s minds. In October 2008, gold prices tumbled 18 percent as the most-severe slump since the Great Depression spurred losses in global equity and commodity markets. However, the yellow metal jumped 23 percent in the next two months.

5. Too Fast Too Soon

The summer run-up in the gold price was too far too fast and too soon as institutional speculators extended their long positions in paper derivative markets. All these tell-tale signatures suggested a big fall at some stage, which has now arrived. Rather than any dramatic reversal in world physical markets, it looks like gold's precipitous price decline in recent days and weeks can be attributed at some level to the same set of speculators -- including some prominent hedge funds and the trading desks of the big Wall Street, European and Asian banks -- reversing their positions or cashing out of gold altogether.

6. Deflation and Commodities

Slowing world growth has created pressure on gold and commodities from the deflation angle. The broad slide in commodity markets also helped drag gold lower, as declines in the commodity indices prompted managers to liquidate gold.


The fall in the price of gold at a time of increased global uncertainty can be counter-intuitive for some investors to understand. Of all the reasons cited for the accelerated decline in the price of gold, knowledgeable senior executives -- with board level responsibilities in gold mining and gold bullion trading -- suspect that worries about Exchange Traded Funds (ETFs) and investors pulling out of their leveraged gold positions are amongst the most likely suspects. The increased margin requirements may still be a minor contribution but would likely cause a further modest dampening of sentiment.

Is this a short-term or long-term correction? Could the correction in gold prices be short-term and similar to initial losses suffered in 2008 or is this a more long-term correction like the one in the early 1980s that lasted for more than two decades? The length of the fall in gold prices depends perhaps on how long will it take for the ETF situation to normalise!

Some senior executives from the gold industry feel that the long-term upward trend in the price of gold is likely to continue because physical supply from new production is very limited and the overhang from central banks pretty securely locked-in for the moment. This leaves open the question that how long will the transition period of falling gold prices be before the long-term trend resumes?

Having said (plagiarized) all that, it is my belief that most of the drop on Friday was the result of the in-the-club knowledge of margin hikes (why, oh why, will no one give me a badge and a gun?). None of this affects the long-term fundamentals, though, in any way that I can see (have to agree with that douche Deninger about this), and at some point in the future (a week? a month? a year?), those who didn't will be kicking themselves for not buying silver at $40. I, for one, will not ignore the opportunity hereby bestowed; viz., sale on silver, two for the price of one. Yay. Guess the Valiuminun scriptins are starting to wear off.

Cliff Claven Cheers's picture

Thank you Mister that was very informative.

I think I need to buy a gun's picture

the fire has started paper and kindling have already started....all we are waiting on is the main logs very soon

Caviar Emptor's picture

The big story this week is probably going to be the further decimation of industrial metals prices.

LOL. That ain't the only thing to be decimated. Keep your eyes wide open. 

DormRoom's picture

if you are in a leveraged gold or silver ETF, get the fuck out.  You can get wiped out, if you hold an ETF, when the underlying asset is falling sharply.  You get wiped out, but the ETF consolidates shares, so it can continue to fall.

scatterbrains's picture

unless it's ZSL or DZZ for the time being anyway, but true.. I feel for anyone trapped in these 3x long funds praying for a bounce. Seriously it's getting ugly.

I think I need to buy a gun's picture

yep we saw this movie before in 2008 when the slv dropped below 10 maybe 5...but could you get a coin for 5 dollars. Pretty soon your silver will be priced in gold terms along with oil.........the paper its the paper....everything paper is on fire

Cliff Claven Cheers's picture

BTW where is Mako, it only costs $5.00 to dig silver out of the ground.

jomama's picture

considering a 30%+ drop in the last 72 trading hours can't be a real move, how low can it go?

bob_dabolina's picture

It can be a real move and it is a real move. 

You can lead a horse to water... 

jomama's picture

i'm sure the price fluctuation is based on real supply and demand.

go be an asshole somewhere else.  i wasn't even fucking talking to you.  

oh, and uprating your own posts is pretty pathetic.

scatterbrains's picture

This fluctuation is based on the hope now dashed that the Bernank would print along with twist. Now it's a game of chicken.. will he print ? How soon? He has to print! or does he ? meanwhile pm's are getting slaughtered... this is bad.


Western's picture

JPM setting loose a couple of destructo-algorithms at midnight and CME raising margins in concert is considered a real move (in terms of Ag price)?


DormRoom's picture

Bernanke was right.  The increase in commodity prices was transitory. lmao.

Hearst's picture

President Lyndon Johnson on July 23, 1965

“Now, all of you know these changes are necessary for a very simple reason–silver is a scarce material. Our uses of silver are growing as our population and our economy grows. The hard fact is that silver consumption is now more than double new silver production each year. So, in the face of this worldwide shortage of silver, and our rapidly growing need for coins, the only really prudent course was to reduce our dependence upon silver for making our coins.

If we had not done so, we would have risked chronic coin shortages in the very near future.

Some have asked whether our silver coins will disappear. The answer is very definitely-no.

Our present silver coins won’t disappear and they won’t even become rarities. We estimate that there are now 12 billion–I repeat, more than 12 billion silver dimes and quarters and half dollars that are now outstanding. We will make another billion before we halt production. And they will be used side-by-side with our new coins.

Since the life of a silver coin is about 25 years, we expect our traditional silver coins to be with us in large numbers for a long, long time.

If anybody has any idea of hoarding our silver coins, let me say this. Treasury has a lot of silver on hand, and it can be, and it will be used to keep the price of silver in line with its value in our present silver coin. There will be no profit in holding them out of circulation for the value of their silver content.”

spekulatn's picture

Outstanding post, Tyler.

Steroid's picture

So many pages from a soon to be bailed out -again- bank.

The main question is credibility, DB's

Absalon's picture

The report seems to leave out Canada even though its banking system is larger than that of some of the countries covered.

LeonardoFibonacci's picture

For some reason the canadian banks seem to weasel their way out of world turmoil.  Can anyone please help me understand why canada always gets away with their banking system?

Let them eat iPads's picture

Backstopped by taxpayers, particularly mortgages.

SGS's picture

We had banks fail in the ealry 90's.  Always...? always what? ONCE in 2008.  Fuck sake.

RobotTrader's picture

New high for the move in the U.S. dollar, wow....

High Plains Drifter's picture

do you find any of this kind of fishy considering the shape of the world financial system , there robo?   with these moves in the metals, i have to say something bad this way comes....

kito's picture

Cant mess with robo, hes the master of pointing out the obvious. Just the other day he gloated that the sun rose. And when dusk came, he was quick to point that out as well. Hes a real sharp one....

Ahmeexnal's picture

Kito, how is real estate in Salinas?  Can't figure out what Ecuador will do when the USD crashes. Aren't there any sucre backup plans?

Al Huxley's picture

As you pointed out previously, what happens overnight is irrelevant. That's true for stock futures, metals prices and currencies. Whether people here like it or not, for now the sun still rises and sets on NY time.

Caviar Emptor's picture

Asia stock markets gloomy tonight...again. 

Flash: Nikkei below tsunami lows


medicalstudent's picture

silvers gonna humdrum down to 23 ish and mosey throughout the 20s-low30s for a couple months before skyrocketing in a flash of lightining to 100.



zorba THE GREEK's picture

I haven't used leverage in ten + years, but if silver goes down to anywhere

near $20, I am going in big on a levered silver trade. 

scatterbrains's picture

The only thing is if the political winds change and the keynsians are thrown out on there ass's we could see $6 dollar silver or less come  the deflationary destruction it will bring.. just saying.  Anyone that buys silver believes in the Bernank.  I'm not so sure.

kito's picture

Scatter--that change is already upon us. They cant even get funding for irene victims. No money to be spent in congress. Ben left the ship, and its mutiny on the deck. Keynesians are walking the plank. Pms, and everything except cash, are shark bait.

scatterbrains's picture

They sure are culling the herd tonight though wow! Lots of peeps trapped looking for a bounce are going to get blown out it looks like.

X.inf.capt's picture

ill stop lurkin to comment on this one,

did you say $23 on silver....if you did, im having another garage sale next weekend like i did today, hell, my woman would sell her furiture at it to buy at $23.

how in the hell can they justify silver at anything lower than $50. anything lower than that is a fire sale.


Shirley Wilfahrt's picture

I was buying at $8....I was buying at $42.....I bought more at $30....




Cliff Claven Cheers's picture

Fart, nice to see you again. That pic cracks me up every time. Is that you or a friend of yours?

medicalstudent's picture

agreed, as the white metal is invaluable.


the current prices will soon be seen as so unjustified that the end result will be most people will never hold a silver coin, as it will go untouchable and immeasurably valuable.


but for now, and for most of this year most likely, the silver window will remain open so long as post office trucks deliver the fucking mail.


after that, stock up on quinoa.


the apocalyptometer (the silver price) will have risen to painfully high levels.



Dugald's picture

Sure hope to christ I neve need you for medical advise......