Tag Archives: Deutsche Bank

Is It Time To Panic About Deutsche Bank?, by Tyler Durden

Posted on February 4, 2016 | Leave a comment

SLL has been keeping its eye on Deutsche Bank since the middle of last year. There is growing cause for concern. From Tyler Durden at zerohedge.com:

Back in April 2013, we showed for the first time something few were aware of, namely that “At $72.8 Trillion, The Bank With The Biggest Derivative Exposure In The World” was not JPMorgan as some had expected, but Germany’s banking behemoth, Deutsche bank.

Some brushed it off, saying one should never look at gross derivative exposure but merely net, to which we had one simple response: net immediately becomes gross when just one counterparty in the collateral chains fails – case in point, the Lehman and AIG failures and the resulting scramble to bailout the entire world which cost trillions in taxpayer funds.

We then followed it up one year later with “The Elephant In The Room: Deutsche Bank’s $75 Trillion In Derivatives Is 20 Times Greater Than German GDP.”

Then, last June, we asked the most pointed question yet: “Is Deutsche Bank The Next Lehman?” only this time it wasn’t just the bank’s gargantuan balance sheet risk shown below that was dominant…

…. but the fact that it impaired assets had finally started to trickle down through to the income statement, leading to loss after loss, management exit after exit, market rigging settlement after market rigging settlement, and all culminating ten days ago with the bank’s “titanic”, and record, €7 billion loss, surpassing the bank’s troubles even during the depths of the Global Financial Crisis.

But while income statement losses can be brushed aside, far more troubling was that even other banks had started paying attention to the bank’s balance sheet. This is what Citi said:

We view the leverage ratio as the binding capital constraint for Deutsche. The current 3.5% is well below peers and the company’s own 4.5% target. Post restructuring & litigation charges and a Postbank divestment at 0.6x P/TB, we estimate a pro-forma leverage ratio of c3.3%. This implies a c€15bn shortfall, of which we expect part to be met by underlying retained earnings and part via AT1 issuance. However this still leaves an equity shortfall – we see a c4% leverage ratio by end-2017 – which is likely to necessitate a capital increase of up to €7bn in our view. In addition we note the target CET1 ratio of >12.5% only allows for a 0.25% management buffer above the fully-loaded SREP requirement. This provides the company with limited flexibility especially if BaFin were to introduce a counter-cyclical buffer (max 2.5% add-on).

And then there is the huge black hole that is China, and exposure to it… although others are starting to pay attention, and as New Europe wrote two weeks ago, “Major European banks… are significantly exposed to China and if there is significant deleveraging the impact will no doubt be global.”

Banks such as HSBC, such as Deutsche Bank.

We bring all this up because here is what the stock price of Deutsche Bank has done since our first warning about the huge potential risks borne by Deutsche Bank, back in April 2013 – earlier today it touched on fresh post-crisis lows and down substantially since we first started warning about it:

But the real chart everyone should be paying attention to – we certainly have been for a long, long time – is that of DB’s Credit Default Swaps, the earliest harbinger not of company risk, that has been there for a long, long time, but far more importantly of the market’s realization and admission of this risk, have been blowing up and screaming that something is very, very broken at the bank with the largest gross notional derivative exposure in the world.

So, our question for today, is it time to panic about Deutsche Bank yet?

http://www.zerohedge.com/news/2016-02-03/it-time-panic-about-deutsche-bank

Leave a comment

Posted in Business, Debt, Economy

Tagged ,

Deutsche Bank Stunner: An Inside Look At Former CEO’s Role In Liborgate, by Tyler Durden

Posted on July 17, 2015 | Leave a comment

As Deutsche Bank goes, so go Europe’s banks? As Europe’s banks go, so goes Europe? As Europe goes, so goes the rest of the world? We’ll see. SLL has been keeping its eye on Deutsche Bank (see “Deutsche Bank CEO May Have Lied To Bundesbank About Rate Rigging, BaFin Says,” “Is Deutsche Bank The Next Lehman?” and “A Derivatives Bomb Exploded Within The Last Two Weeks”). From Tyler Durden at zerohedge.com:

Earlier this week in “The Inside Story Of How Deutsche Bank ‘Deals With’ Whistleblowers,” we gave you a play-by-play account of how the bank summarily dismissed Dr. Eric Ben-Artzi after the former Goldmanite raised questions about how Deutsche valued its crisis-era derivatives book.

In short, the story is a reflection of what some say is a hopelessly corrupt corporate culture and indeed, recent events at the bank underscore the extent to which it is reeling from expensive settlements and rampant defections. Here’s a recap of Deutsche Bank’s recent trials and travails:

In April, Deutsche settled rate rigging charges with the DoJ for $2.5 billion (or about $25,474 per employee). A month later, the bank paid $55 million to the SEC (an agency that’s been run by former Deutsche Bank employees and their close associates for years) in connection with allegations it deliberately mismarked its crisis-era LSS book to the tune of at least $5 billion. On May 8, the bank’s head of structured finance Elad Shraga — who was instrumental in helping Deutsche become “an award-winning arranger of asset- and mortgage-backed debt — left the firm after 15 years. Then on June 5, US Attorney General Loretta Lynch announced the Justice Department would pursue new settlements with European banks over crisis-era MBS sales. Four days later, the bank’s headquarters were raided by authorities in connection with possible client tax evasion and on June 15, the firm’s global head of commercial real estate, Jonathan Pollack, defected to Blackstone.

Oh, and both CEOs resigned on June 7.

On June 26, FT revealed that BaFin, Germany’s financial “watchdog”, had raised serious questions about whether outgoing co-CEO Anshu Jain had misled the Bundesbank about who knew what and when with regard to the bank’s participation in the manipulation of LIBOR among other possible infractions. Summarizing, we said that BaFin apparently thinks Anshu Jain might have known his traders were manipulating LIBOR and also might have taken around a half decade or so to punish a trader who PIMCO apparently caught manipulating IR swaps.

Now, the entire BaFin report (which was sent to Deutsche Bank in May) has leaked. Here’s WSJ:

BaFin, the German financial watchdog, sent the report to Deutsche Bank’s management board on May 11, less than a month before the German lender unexpectedly announced that its co-chief executives, Anshu Jain and Jürgen Fitschen, planned to resign. Deutsche Bank officials said in June that the resignations weren’t the result of regulatory pressure.

Mr. Jain, whose resignation took effect June 30 and who is still employed by Deutsche Bank as a consultant, is singled out for especially harsh criticism in the letter for allegedly providing inadequate leadership and failing to stop manipulation of the London interbank offered rate, or Libor, and other market benchmarks.

To continue reading: Deutsche Bank Stunner

Leave a comment

Posted in Crime, Financial markets, Other Views

Tagged

Deutsche Bank CEO May Have Lied To Bundesbank About Rate Rigging, BaFin Says, from Tyler Durden

Posted on June 27, 2015 | Leave a comment

There’s more from Deutsche Bank (see “Is Deutsche Bank The Next Lehman?” SLL, 6/13/15, and “A Derivatives Bomb Exploded Within The Last Two Weeks,” SLL, 6/24/15). Keep an eye on this story. From Tyler Durden at zerohedge.com:

A lot has transpired at Deutsche Bank over the last three months. Let’s recap.

In April, Deutsche settled rate rigging charges with the DoJ for $2.5 billion (or about $25,474 per employee). A month later, the bank paid $55 million to the SEC (an agency that’s been run by former Deutsche Bank employees and their close associates for years) in connection with allegations it deliberately mismarked its crisis-era LSS book to the tune of at least $5 billion. On May 8, the bank’s head of structured finance Elad Shraga — who was instrumental in helping Deutsche become “an award-winning arranger of asset- and mortgage-backed debt — left the firm after 15 years. Then on June 5, US Attorney General Loretta Lynch announced the Justice Department would pursue new settlements with European banks over crisis-era MBS sales. Four days later, the bank’s headquarters were raided by authorities in connection with possible client tax evasion and on June 15, the firm’s global head of commercial real estate, Jonathan Pollack, defected to Blackstone.

Oh, and both CEOs resigned on June 7.

Now, Germany’s financial regulator says departing co-CEO Anshu Jain may have lied to the Bundesbank about LIBOR manipulation when he apparently denied having any knowledge of rumors that the fixes may have been fixed (so to speak) even as his inbox told a different story. FT [Financial Times] has more:

Deutsche Bank’s senior management allegedly acted “negligently” over the fixing of Libor rates and Anshu Jain, its outgoing joint leader, may have lied to the German central bank, the country’s financial regulator concluded in a recent report that leaves Deutsche vulnerable to further action by authorities.

One of the bank’s biggest clients, Pimco, the asset management group, also lost out when one of Deutsche’s traders attempted to manipulate Isdafix, a key derivatives benchmark whose potential rigging is being investigated by US watchdogs.

The explosive conclusions are contained in a report into Libor-manipulation by BaFin, the German financial regulator, which has been seen by the Financial Times. It concludes that special “banking supervisory measures” should be considered for Deutsche.

To continue reading: Deutsche Bank CEO May Have Lied To Bundesbank

http://www.zerohedge.com/news/2015-06-26/deutsche-bank-ceo-may-have-lied-bundesbank-about-rate-rigging-bafin-says

Leave a comment

Posted in Financial markets, Other Views

Tagged

A Derivatives Bomb Exploded Within The Last Two Weeks, by Investment Research Dynamics

Posted on June 24, 2015 | 1 comment

SLL recently published a guest post, “Is Deutsche Bank The Next Lehman?” (6/13/15). Along the same line is this post from Investment Research Dynamics, which raises the suspicion of a recent derivatives “accident” at Deutsche Bank. There is no smoking gun, just speculation, but Deutsche Banks huge derivatives book, recent developments at the bank detailed in the prior article, the turmoil in debt markets, and the Greek situation, lends some credence to the speculation. If Deutsche Bank is in trouble, most of us won’t know it until well after financial markets have reacted. From Investment Research Dynamics:

I’ve never seen so many sophisticated Wall Street’ers this scared in my entire career. – This comment comes from a very well-connected Wall Street/DC insider and is in reference to how illiquid the bond markets have become.

Something deep and dark has transpired behind the Orwellian “curtain” used by the elitists to hide the inner workings of the financial markets, especially with regard to big bank balance sheets and OTC derivatives. What’s happening right now reminds of the movie “Jurassic Park.” You can hear and feel the monster coming but you can’t see it yet and you don’t know it will pop up in your face or how big it is.

It was the sudden firing of Deutche Bank’s co-CEOs this past weekend – The Brown Stuff Is About To Hit The Fan – that prompted me to spend more time analyzing a sequence of events which indicate to me some sort of derivatives position, possibly at Deutsche Bank, has exploded. In addition, the stock and bond markets have been emitting some curious signals which reflect that fact that something happened in the global economic and financial system.

Let’s look at some charts first (click on any chart to enlarge). The first graph below shows a 1-yr plot Dow Jones Transportation Average vs. the S&P 500:

As you can see, the DJ Transports and the S&P 500 were tightly correlated until the end of April 2015. The Transports hit an all-time high on October 25, 2014, which is about when the Fed formally ended its QE program. The DJT began to underperform the S&P 500 at the end of April. Since then it began to diverge quite negatively from the S&P 500. The DJ Transports are largely made up of trucking, railroad and delivery services stocks. This sector of the market reflects the heart-beat of economic activity, especially as it relates to consumer spending in the United States. The Transports are down 9.4% from its all-time high. I wrote about the collapsing U.S. economy a week ago: LINK The behavior of the Dow Jones Transports is the market’s confirmation that the U.S. economy is contracting.

A collapsing global economic system will exert an unanticipated and extreme amount of stress on highly leveraged financial systems. This stress is “magnified” by the enormous amount of derivatives which are connected to the disastrous amount of global debt.

An even more curious chart is the relationship between the yield on the 10yr Treasury bond and the DJ Transports:

As you can see, the yield on the 10yr Treasury bond has been trending higher since the beginning of February while the DJ Transports has been trending lower. Notice a problem? In a “clean” market – i.e. a market free from Central Bank and Government interventions, interest rates and the DJ Transports should be positively correlated. If the economy is contracting, as reflected by the direction in the DJ Transports, the yield on the 10yr Treasury should be declining – not rising. You can see that when the DJ Transports ran up to an all-time high, the 10yr yield spiked up, reflecting the markets perception that the U.S. economy might be strengthening.

It does not make sense that the 10-yr Treasury yield is moving higher – quite rapidly – while the DJ Transports are tanking – quite rapidly. In the first week of June, the yield on the 10yr Treasury bond spiked up from 2.09 to 2.40, a 14.8% move. This is a big move for yields in just 5 trading days, especially in the context of a rapidly weakening economy. Worst case, 10yr yields should have remained flat.

I believe the illogical movement in 10yr Treasury yields reflects the fact the Fed is losing control of its tight grip on the bond market and longer term interest rates. Note that German bunds have also experienced a similar spike up in interest rates and volatilty. In the context of my view that there was a derivatives accident somewhere in the global banking system in the last two weeks, it could well have been an OTC interest rate swap bomb that detonated.

To continue reading: A Derivatives Bomb Exploded Within The Last Two Weeks

http://investmentresearchdynamics.com/a-derivatives-bomb-exploded-within-the-last-two-weeks/

1 Comment

Posted in Financial markets, Other Views

Tagged ,

Is Deutsche Bank The Next Lehman? by NotQuant.com

Posted on June 13, 2015 | 6 comments

The title raises a disturbing possibility, and as the article states, “we will not know until events are moving at an uncotrollable and accelerating speed.” Click through to the story and check out the graph of Deutsche Bank’s derivatives exposure versus insignificant magnitudes like German and Eurozone GDPs. From NotQuant.com, via theburningplatform.com:

Looking back at the Lehman Brothers collapse of 2008, it’s amazing how quickly it all happened. In hindsight there were a few early-warning signs, but the true scale of the disaster publicly unfolded only in the final moments before it became apparent that Lehman was doomed.

First, for purposes of drawing a parallel, let’s re-cap the events of 2007-2008:

There were few early indicators of Lehman’s plight. Insiders however, were well aware: In late 2007, Goldman Sachs placed a massive proprietary bet against Lehman which would be known internally as the “Big Short”. (It’s a bet that would later profit from during the crisis).

In the summer 2007 subprime loans were beginning to perform poorly in the marketplace. By August of 2007, the commercial paper market saw liquidity evaporating quickly and funding for all types of asset-backed security was drying up.

But still — even in late 2007, there was little public indication that Lehman was circling the drain.

Probably the first public indication that things were heading downhill for Lehman wasn’t until June 9th, 2008, when Fitch Ratings cut Lehman’s rating to AA-minus, outlook negative. (ironically, 7 years to the day before S&P would cut DB)

The “negative outlook” indicates that another further downgrade is likely. In this particular case, it was the understatement of all time.

A mere 3 months later, in the course of just one week, Lehman would announce a major loss and file for bankruptcy.

And the rest is history.

Could this happen to Deutsche Bank?
First, we must state the obvious: If Deutsche Bank is the next Lehman, we will not know until events are moving at an uncontrollable and accelerating speed. The nature of all fractional-reserve banks — who are by definition bankrupt at all times – is to project an aura of stability until that illusion has already begun to implode.

By the time we are aware of a crisis – if one is in the offing — it will already be a roaring blaze by the time it is known publicly. It is by now well-established that truth is the first casualty of all banking crises. There will be little in the way of early warnings. To that end, we begin connecting the dots:

Here’s a re-cap of what’s happened at Deutsche Bank over the past 15 months:

• In April of 2014, Deutsche Bank was forced to raise an additional 1.5 Billion of Tier 1 capital to support it’s capital structure. Why?
• 1 month later in May of 2014, the scramble for liquidity continued as DB announced the selling of 8 billion euros worth of stock – at up to a 30% discount. Why again? It was a move which raised eyebrows across the financial media. The calm outward image of Deutsche Bank did not seem to reflect their rushed efforts to raise liquidity. Something was decidedly rotten behind the curtain.
• Fast forwarding to March of this year: Deutsche Bank fails the banking industry’s “stress tests” and is given a stern warning to shore up it’s capital structure.
•In April, Deutsche Bank confirms it’s agreement to a joint settlement with the US and UK regarding the manipulation of LIBOR. The bank is saddled with a massive $2.1 billion payment to the DOJ. (Still, a small fraction of their winnings from the crime).
•In May, one of Deutsche Bank’s CEOs, Anshu Jain is given an enormous amount of new authority by the board of directors. We guess that this is a “crisis move”. In times of crisis the power of the executive is often increased.
•June 5: Greece misses it’s payment to the IMF. The risk of default across all of it’s debt is now considered acute. This has massive implications for Deutsche Bank.
•June 6/7: (A Saturday/Sunday, and immediately following Greece’s missed payment to the IMF) Deutsche Bank’s two CEO’s announce their surprise departure from the company. (Just one month after Jain is given his new expanded powers). Anshu Jain will step down first at the end of June. Jürgen Fitschen will step down next May.
• June 9: S&P lowers the rating of Deutsche Bank to BBB+ Just three notches above “junk”. (Incidentally, BBB+ is even lower than Lehman’s downgrade – which preceded it’s collapse by just 3 months)

And that’s where we are now. How bad is it? We don’t know because we won’t be permitted to know. But these are not the moves of a healthy company.

http://www.theburningplatform.com/2015/06/13/is-deutsche-bank-the-next-lehman/

To continue reading: Is Deutsche Bank The Next Lehman?

6 Comments

Posted in Debt, Financial markets, Other Views

Tagged ,