This is a first: The European Central Bank (ECB) has asked Deutsche Bank to estimate the impact of winding down the trading operations of its investment bank. It wants to know if Germany’s largest bank can come out of this activity without guarantees from the State or German taxpayers’ money. In particular, the risks associated with the unwinding of derivatives are the most worrisome of all – we wrote about that as early as 2013: Deutsche Bank has the most exposure to derivatives in the world, to the tune of $64 Trillion, or 16 times Germany’s GDP...
But isn’t it already too late? La Tribune quotes a renowned analyst, Stuart Graham, from Autonomous Research, who estimates that the German bank is probably “beyond repair”. According to Süddeutsche Zeitung, “Deutsche Bank is one of the most dangerous financial institutions in the world, due to its complex activities.”
The Frankfurt-based bank is also piling up litigation and trials. Since 2012 it has spent more than €20 billion in legal expenses, which is much more than the capital brought in by investors during the same period... In January 2017, the bank had to pay a $7.2 billion fine to the American authorities to settle the sub-primes crisis. Along with convictions for manipulating the LIBOR rate and precious metals, the German bank is everywhere there is something fishy going on.
All this bad news led Standard & Poor’s, on April 13, to place their long-term note at A-, under “surveillance with negative implications”. The stock price shows massive defiance by investors: at around €11, it is merely above what it was in September 2016, when the spectre of Lehman Brothers was hovering above the financial institution. Already in 2015, the bank had failed the Fed’s stress tests... Decidedly, Deutsche Bank is having trouble getting out of the crisis.
And how is Deutsche Bank reacting? Well, just like a normal bank, that is without changing anything to the oligarchic structure and despicable habits of international finance. Its boss, unable to straighten up the situation, the British John Cryan, is fired on April 9... with a €9 million golden parachute, of course, and is replaced by the German Christian Sewing, whose whole career has been at the bank... do you think this guy will revolutionize their attitude? And, to make it more grotesque, the American John Thain has been named on the Surveillance Council – he’s the one who was managing Merrill Lynch when it went under during the sub-primes crisis in 2008 and was fired from Bank of America, the acquirer, for underestimating the losses and attributing large bonuses... a fine connoisseur!
If I were a client with Deutsche Bank, I’d be worried. Many banks are ailing in Europe, notably in Italy, Greece and Spain, but Deutsche Bank, sitting at the core of Europe’s largest and most competitive economy, is like an atomic bomb that could spark a worldwide financial crisis, just like Lehman Brothers did in the past. Even Mario Draghi, ordinarily placid and nonchalant, is starting to worry...
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Philippe Herlin Finance Researcher / Doctor in Economics
Philippe Herlin is a researcher in finance and a doctor in economics of the Conservatoire National des Arts et Métiers in Paris. A proponent of extreme-risk thinkers like Benoît Mandelbrot and Nassim Taleb, and of the Austrian School of Economics, he will be bringing his own views on the actual crisis, the Eurozone, the public debts and the banking system. Having written a book on gold that has become a reference (L’or, un placement d’avenir, Eyrolles 2012), he wishes to see gold play a growing role in our economies, all the way to its full re-monetization.