Deutsche Bank Tumbles To New Record Low, Drags European Banks

Global systemic fears re-emerged this morning, when in addition to ongoing concerns about trade wars which dragged Chinese stocks deeper into a bear market as the Yuan fell for a 10th consecutive day, now there are European banks to also worry about.

Having been relatively stable for much of the recent slide, on Wednesday morning, Deutsche Bank came under heavy selling pressure, tumbling 5% shortly after the start of trading, and dropping to a new all time low of €8.76, and bringing its market cap to just $21BN. By comparison, JPMorgan's market cap is $357BN.

The stock has since rebounded modestly, and was down 2.3% last, after breaking below €9 for the first time since 2016, when Germany's largest bank was seen to be on the verge of collapse...

... however the dead cat bounce appears to be nothing more than a temporary respite: "Falling bellow the €9 level adds more pressure to the stock as that was seen as a technical low bottom,” Ignacio Cantos, investment director at ATL Capital in Madrid, told Bloomberg.

The drop in Deutsche Bank sent the The Stoxx Banks Index down 1.8%, to the lowest level since 2016. European Banks Index is now 14% down YTD, of which Deutsche Bank is the worst performer, down 44% YTD.

And sent the index of the global systemically important banks to a 14-month low.

What caused the slump? As Bloomberg's Paul Dobson writes, there is plenty to worry about besides the usual worries about trade wars, emerging markets, and Italy, including hedge funds warning of a crisis, talk of higher counter-cyclical buffers, as well as sliding bond yields, the deflationary bogeyman for European banks, which in turn is sending European credit risk higher this morning. 

Whatever the reason, it appears that whatever risks were latent and starting to emerge as a result of trade war concerns as starting to spread as contagion now hits Europe's arguably most sensitive sector.


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vladiki Wed, 06/27/2018 - 06:28 Permalink

Booms that cause busts are always due to credit hypercreation, and usually caused by banks. Because the more dangerously they're run (high leverage ratios) the more profitable they are ... till they bust. With the link to an external control like gold the cycles were relatively short and the punishment of dangerous banks was severe ... thousands folded in the 30's.   In 1971, with the shift to a fiat money system (the average Joe had no idea how momentous that was, and still doesn't) they were unleashed and went on a 47 year bender of credit hypercreation.  They've grown huge and fat on this, and since credit was created far in excess of wealth, we've had massive inflation in goods and services and now in assets. E.g. the housing bubble is a 'bank lending bubble'. Bernanke got a PhD from the Great Depression but got it wrong.  The secret is not to do nothing during boom, then pump in more credit to try and avoid bust, it's to NOT ALLOW CREDIT BOOMS.

Credit is a drug of addiction, as bankers know, so they push it to the vulnerable - because they make nothing from the frugal. Bonus culture has rotted what was left of institutional ethics and banking now is an obese, antisocial disaster.  We have these ridiculous megabanks that are even too big to manage. 

Banking is now unstable everywhere, but it's coming to a head in Germany and China. At the point of collapse what the Bundesbank must do is the opposite of the USA's botched and corrupt management of 2008.  They must not rescue Deutsche and leave it in private hands, they must NATIONALISE it, save depositors  wipe shareholders including past and present managemnt, haircut bondholders, then track down and punish all criminal conduct at every level.  There will be a ton of it.  

We don't need private banks at all.  Germany may end up with none.  But the US still has the notion that everything private is better than anything public. If we do keep private banks, we must keep them on a very tight leash, forever. We must not have a rerun of the last 47 years.

GotGalt vladiki Thu, 06/28/2018 - 23:34 Permalink

' But the US still has the notion that everything private is better than anything public. If we do keep private banks, we must keep them on a very tight leash, forever. We must not have a rerun of the last 47 years. '


US has a policy of privatizing gains and socializing losses with TBTF banks, so it's the worst of all possibilities!

In reply to by vladiki

Ricki13th Wed, 06/27/2018 - 07:06 Permalink

Deutsche Bank is following Lehman almost perfectly. Based on that chart alone it suggests that DB stock will plummet by September of this year making it the trigger similar to Lehman Bros. in 2008. The yield curve will probably invert by the end of August, which is why the financial sectors is selling off.