The largest and most important bank in the largest and most important economy in Europe is imploding right in front of our eyes. Deutsche Bank is the 11th biggest bank on the entire planet, and due to the enormous exposure to derivatives that it has, it…is heading for disaster and is a likely candidate to be “the next Lehman Brothers”.
The comments above and below are excerpts from an article by Michael Snyder (theeconomiccollapseblog.com) which may have been enhanced – edited ([ ]) and abridged (…) – by munKNEE.com (Your Key to Making Money!) to provide you with a faster & easier read. Register to receive our bi-weekly Market Intelligence Report newsletter (see sample here , sign up in top right hand corner)
On September 16th, the Wall Street Journal reported that the U.S. Department of Justice wanted 14 billion dollars from Deutsche Bank to settle a case related to the mishandling of mortgage-backed securities during the last financial crisis. As a result of that announcement, confidence in the bank has been greatly shaken, the stock price has fallen to record lows, and analysts are warning that Deutsche Bank may be facing a “liquidity event” unlike anything that we have seen since the collapse of Lehman Brothers back in 2008.
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Shares of Deutsche Bank have fallen by more than half so far in 2016, and this latest episode seems to have been the final straw for the deeply troubled financial institution:
- Old sources of liquidity are being cut off as nobody wants to be the idiot that offers Deutsche Bank a new source of liquidity at this point…
- The more the stock price drops, the faster other financial institutions, investors and regular banking clients are going to want to pull their money out of Deutsche Bank and
- every time there is news about people pulling money out of the bank, that is just going to drive the stock price even lower.
In other words, Deutsche Bank may be entering a death spiral that may be impossible to stop without a government bailout, and the German government has already stated that there will be no bailout for Deutsche Bank.
One of the reasons why Deutsche Bank is considered to be so systemically “dangerous” is because it has 42 trillion euros worth of exposure to derivatives. That is an amount of money that is 14 times larger than the GDP of the entire nation of Germany. [Indeed,] some firms that were derivatives clients of the bank have already gotten spooked and have moved their business to other institutions…[and this has been a major contributor to the decline in its] stock price…earlier this week…
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So what comes next? [With] Monday a banking holiday for Germany, we may not see anything major happen until Tuesday. An announcement of a major reduction in the Department of Justice fine may buy Deutsche Bank some time, but any reprieve would likely only be temporary. What appears to be more likely, according to Jeffrey Gundlach, is the scenario that…the market is going to push down Deutsche Bank until there is some recognition of support [from the German government who will finally agree to provide some] assistance, if need be. It will be very interesting to see how desperate things become before the German government finally gives in to the pressure.
The complete and total collapse of Deutsche Bank would be an event many times more significant for the global financial system than the collapse of Lehman Brothers was. Global leaders simply cannot afford for such a thing to happen, but without serious intervention it appears that is precisely where we are heading.
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