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…The global financial system simply cannot afford for Deutsche Bank to fail, and right now it is literally melting down right in front of our eyes…[Indeed,] many now believe that the end is near for Deutsche Bank. Here’s why.
…On July 7 the beleaguered German giant announced that it is laying off 18,000 employees—roughly one-fifth of its global workforce—and pursuing a vast restructuring plan that most notably includes shutting down its global equities trading business…These moves may delay Deutsche Bank’s inexorable march into oblivion, but not by much and, as Deutsche Bank collapses, it could take a whole lot of others down with it at the same time.
- According to Wall Street On Parade, the bank had 49 trillion dollars in exposure to derivatives as of the end of last year…putting it in the same league as the… U.S. juggernauts JPMorgan Chase, Citigroup and Goldman Sachs, which logged in at $48 trillion, $47 trillion and $42 trillion, respectively.
- The actual credit risk to Deutsche Bank is much, much lower than the notional value of its derivatives contracts, but we are still talking about an obscene amount of exposure and this is especially true when we consider the state of Deutsche Bank’s balance sheet.
- According to Nasdaq.com, as of the end of last year, the bank had total assets of $1.541T and total liabilities of $1.469T. That’s not much in the way of equity…and things have deteriorated rapidly since that time. In fact, it is being reported that $1T a day is being pulled out of the bank at this point.
…The global derivatives market played a starring role during the last financial crisis, and it will play a starring role in the next one too…
- The…failure of Deutsche Bank could quickly become a major crisis for the entire global financial system…as some of the largest “too big to fail banks” in the United States, such as JPMorgan Chase, Citigroup, Goldman Sachs, Morgan Stanley and Bank of America, as well as other mega banks in Europe, are “heavily interconnected financially” to Deutsche Bank.
- In fact, the IMF concluded that Deutsche Bank posed a greater threat to global financial stability than any other bank as a result of these interconnections (and that was when its market capitalization was tens of billions of dollars larger than it is today).
It appears that the next “Lehman Brothers moment” may be playing out right in front of our eyes. Now more than ever, keep a close eye on Deutsche Bank, because it appears that they could be the first really big domino to fall.
Editor’s Note: The above excerpts from the original article by Michael Snyder have been edited ([ ]) and abridged (…) for the sake of clarity and brevity. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor. Also note that this complete paragraph must be included in any re-posting to avoid copyright infringement.
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Russian Roulette: Put one bullet in the cylinder of a revolver, spin the cylinder, point the gun at YOUR head, and pull the trigger. Most revolvers have 6 chambers, so your odds of surviving are 5 in 6, IF you quit after pulling the trigger once. Press your luck, spin the cylinder, point the gun, and pull the trigger again. It might be okay. Try for a third time? Now let’s play Russian roulette – derivatives style.
Deutsche Bank’s catastrophic derivative exposure has hammered down its stock price from $135 in 2007 to only $17/share today – ergo a heart-stopping price loss of -87%. Furthermore, DB’s stock price appears to be hell bent for leather to follow Lehman Brothers’ lethal path to Wall Street’s graveyard due primarily to its oppressive derivative’s exposure. As Warren Buffett has said: “Derivatives are weapons of mass destruction.”
Never before in the history of the United States have we been faced with the threat of such a great financial catastrophe but, sadly, most Americans are totally oblivious to all of this. They continue to have faith that their leaders know what they are doing, and they have been lulled into complacency by the bubble of false stability that we have been enjoying for the last couple of years. Unfortunately for them, however, this bubble of false stability is not going to last much longer and when the financial crisis comes it is going to make 2008 look like a Sunday picnic. Let me explain why I believe the aforementioned to be the case.