Pity Angela Merkel (just kidding). Deutsche Bank is Germany’s largest bank and a big part of the German economy. It has a huge derivatives exposure and now the US Department of Justice is asking for $14 billion. Merkel and Germany have insisted that southern European nations, particularly Greece and Italy, not bail out their insolvent banks and force depositors and bond holders to share the pain. She has also said that Deutsche Bank will get no government aid. But it’s Deutsche Bank and what happens if depositors start pulling their money? From Tyler Durden at zerohedge.com:
Having kept mostly silent during the past week when Deutsche Bank stock was crashing, its default risk soaring, and only a spurious rumor by French AFP, based on a Twitter report, prevented the bank’s stock from going into a three day weekend at all time lows , on Saturday the German press woke up to the ongoing local banking crisis, reiterating what stoked the crisis in the first place, namely Angela Merkel’s statement last weekend that it won’t bail out Deutsche Bank.
Repeating not only what Merkel herself said last week – a statement which first prompted this week’s plunge in DB stock – but what we have said all along, namely that a bailout of Deutsche Bank would be political suicide for the Chancellor due to pressure from AfD, and may lead to the collapse of Europe, where other nations, namely Italy, have been pushing for a similar bailout of their own banking systems only to be met with stern denials by German, Reuters reports that according to much of the German media, Angela Merkel cannot afford to bail out Deutsche Bank given the hard line Berlin has taken against state aid in other European nations and the risk of a political backlash at home.
Last week’s events, which have prompted numerous flashbacks to that certain historic week in September 2008 when Lehman failed after counterparties yanked cash from the doomed bank, culminated when the German government denied a newspaper report on Wednesday that it was working on a rescue plan for the Germany lender, unleashing a plunge in DB shares, which was accelerated after a Bloomberg report that hedge fund counterparties to DB’s prime brokerage had quietly withdrawn cash from the bank.
Only a so-far unconfirmed and very improbable report on Friday morning that the DOJ is willing to cut the $14 billion penalty to DB by more than half, prevented the stock from plunging further into the Friday close.
And while we wait to find what the real story about the DOJ’s settlement decision is, Germany’s press is already making it clear – once again – that a Deutsche Bank bailout is out of the picture.
As Reuters adds, Germany, which has insisted Italy and others accept tough conditions in tackling their problem lenders, can ill afford to be seen to go soft on its flagship bank, the Frankfurter Allgemeine wrote. “Of course Chancellor Merkel doesn’t want to give Deutsche Bank any state aid,” it wrote in a front-page editorial. “She cannot afford it from the point of view of foreign policy because Berlin is taking a hard line in the Italian bank rescue.”
To continue reading: German Media Says Merkel Can Not Afford To Bail Out Deutsche Bank