Did you know that the sixth largest bank in Spain failed in spectacular fashion just a few days ago? Many are comparing the sudden implosion of Banco Popular to the collapse of Lehman Brothers in 2008, and EU regulators hastily arranged a sale of the failed bank to Santander in order to avoid a full scale financial panic. Sadly, most Americans have no idea that a new financial crisis is starting to play out over in Europe, because most Americans only care about what is going on in America. But we should be paying attention, because the EU is the second largest economy on the entire planet, and the euro is the second most used currency on the entire planet. The U.S. financial system is already teetering on the brink of disaster, and this new financial crisis in Europe could turn out to be enough to push us over the edge.
If EU regulators had not arranged a “forced sale” of Banco Popular to Santander, we would probably be witnessing panic on a scale that we haven’t seen since 2008 in Europe right about now. The following comes from the Telegraph…
Spanish banking giant Santander has stepped in to the rescue ailing rival Banco Popular by taking over the failing lender for €1 in a watershed deal masterminded by EU regulators to avoid a damaging collapse.
Santander will tap its shareholders for €7bn in a rights issue to raise the capital needed to shore-up Popular’s finances in a dramatic private sector rescue of Spain’s sixth-largest lender.
It will inflict losses of approximately €3.3bn on bond investors and shareholders but crucially will avoid a taxpayer bailout.
But now that a “too big to fail” bank like Banco Popular has failed, investors are immediately trying to figure out which major Spanish banks may be the next to collapse. According to Wolf Richter, many have identified Liberbank as an institution that is highly vulnerable…
After its most tumultuous week since the bailout days of 2012, Spain’s banking system is gripped by a climate of fear, uncertainty and distrust. Rather than allaying investor nerves, the shotgun bail-in and sale of Banco Popular to Santander on Tuesday has merely intensified them. For the first time since the Global Financial Crisis, shareholders and subordinate bondholders of a failing Spanish bank were not bailed out by taxpayers; they took risks in order to make a buck, and they bore the consequences. That’s how it should be. But bank investors don’t like not getting bailed out.
Now they’re worrying it could happen again. As Popular’s final days showed, once confidence and trust in a bank vanishes, it’s almost impossible to restore them. The fear has now spread to Spain’s eighth largest lender, Liberbank, a mini-Bankia that was spawned in 2011 from the forced marriage of three failed cajas (savings banks), Cajastur, Caja de Extremadura and Caja Cantabria.
On Thursday, shares of Liberbank dropped by an astounding 20 percent, and that was followed up by another 19 percent decline on Friday.
Spanish authorities responded by banning short sales of Liberbank shares, and that caused a short-term rebound in the stock price.
But we haven’t seen this kind of chaos in European financial markets in a very long time.
Meanwhile, Nick Giambruno is sounding the alarm about a much bigger bubble. At this moment, more than a trillion dollars worth of Italian government bonds have negative yields…
Over $1 trillion worth of Italian bonds actually have negative yields.
It’s a bizarre and perverse situation.
Lending money to the bankrupt Italian government carries huge risks. So the yields on Italian government bonds should be near record highs, not record lows.
Negative yields could not exist in a free market. They’re only possible in the current “Alice in Wonderland” economy created by central bankers.
You see, the European Central Bank (ECB) has been printing money to buy Italian government bonds hand over fist. Since 2008, the ECB and Italian banks have bought over 88% of Italian government debt, according to a recent study.
The moment that the ECB stops wildly buying Italian bonds, the party will be over and the Italian financial system will crash. Unfortunately for Italy, the Germans are pressuring the ECB to quit printing so much money, and the Germans usually get their way in these things.
But if the Germans get their way this time, we could be facing a complete and utter nightmare very quickly. Here is more from Nick Giambruno…
Once the ECB—the only large buyer—steps away, Italian government bonds will crash and rates will soar.
Soon it will be impossible for the Italian government to finance itself.
Italian banks—which are already insolvent—will be decimated. They hold an estimated €235 billion worth of Italian government bonds. So the coming bond crash will pummel their balance sheets.
It’s shaping up to be a lovely train wreck.
And all of this is happening in the context of a global economy that appears to be headed for a major downturn.
For example, the last time that global credit growth showed down this rapidly was during the last financial crisis…
From peak to trough the deceleration in global credit growth is now approaching that during the global financial crisis (-6% of global GDP), even if the dispersion of the decline is much narrower. Currently 55% of the countries in our sample have experienced a -0.3 standard deviation deterioration in their credit impulse (median over 12 months) compared to 77% of countries in Dec ’09 when the median decline was -1.4 stdev.”
Of course the last time global credit growth decelerated this dramatically, global central banks intervened on a scale that was unlike anything that we had ever seen before.
But this time around it is happening at a time when global central banks are very low on ammo…
More importantly, back in 2009, not only China, but the Fed and other central banks unleashed the biggest injection of credit, i.e. liquidity, the world has ever seen resulting in the biggest asset bubble the world has ever seen. And, this time around, the Fed is set to hike for the third time in the past year, even as the ECB and BOJ are forced to soon taper as they run out of eligible bonds to monetize. All this comes at a time when US loan growth is weeks away from turning negative.
As such, what “kickstarts” the next spike in the credit impulse is unclear. What is clear is that if the traditional 3-6 month lag between credit inflection points, i.e. impulse, and economic growth is maintained, the global economy is set for a dramatic collapse some time in the second half.
There are so many experts that are warning about big economic trouble in our immediate future. I would like to say that all of the experts that are freaking out are wrong, but I can’t do that.
I have not seen an atmosphere like this since 2008 and 2009, and everything points to an acceleration of the crisis as we enter the second half of this year.
Their agenda may be on the rocks in the United States at the moment, but that doesn’t mean that the globalists are giving up. In fact, a major push toward a cashless society is being made in the European Union right now. Last May we learned that the 500 euro note is being completely eliminated, and just a few weeks ago the European Commission released a new “Action Plan” which instructs member states to explore “potential upper limits to cash payments”. In the name of “fighting terrorism”, this “Action Plan” discusses the benefits of “prohibitions for cash payments above a specific threshold” and it says that those prohibitions should include “virtual currencies (such as BitCoin) and prepaid instruments (such as pre-paid credit cards) when they are used anonymously.”
This new document does not mention what an appropriate threshold would be for member states, but we do know that Spain already bans certain cash transactions above 2,500 euros, and Italy and France already ban cash transactions above 1,000 euros.
This is a perfect way to transition to a cashless society without creating too much of an uproar. By setting a maximum legal level for cash transactions and slowly lowering it, in effect you can slowly but surely phase cash out without people understanding what is happening.
And there are many places in Europe where it is very difficult to even use cash at this point. In Sweden, many banks no longer take or give out cash, and approximately 95 percent of all retail transactions are entirely cashless. So even though Sweden has not officially banned cash, using cash is no longer practical in most situations. In fact, many tourists are shocked to find out that they cannot even pay bus fare with cash.
So most of Europe is already moving in this direction, and now this new Action Plan is intended to accelerate the transition toward a cashless society. The public is being told that these measures are being taken to fight money laundering and terrorism, but of course that is only a small part of the truth. The following comes from the Anti-Media…
The European Action Plan doesn’t mention a specific dollar amount for restrictions, but as expected, their reasoning for the move is to thwart money laundering and the financing of terrorism. Border checks between countries have already been bolstered to help implement these new standards on hard assets. Although these end goals are plausible, there are other clear motivations for governments to target paper money that aren’t as noble.
In a truly cashless society, governments would be able to track where everybody is and what everybody is doing all the time. And in order to have access to the cashless system, people would have to comply with whatever requirements governments wanted to impose on their helpless populations. The potential for tyranny that this would create would be off the charts, but very few people seem greatly alarmed by the move toward a cashless system all over the globe.
Even in the United States there are calls for a cashless system. For example, the former chief economist for the IMF wrote an article for the Wall Street Journal not too long ago in which he recommended the elimination of the $100 bill…
“There is little debate among law-enforcement agencies that paper currency, especially large notes such as the U.S. $100 bill, facilitates crime: racketeering, extortion, money laundering, drug and human trafficking, the corruption of public officials, not to mention terrorism. There are substitutes for cash—cryptocurrencies, uncut diamonds, gold coins, prepaid cards—but for many kinds of criminal transactions, cash is still king. It delivers absolute anonymity, portability, liquidity and near-universal acceptance.”
Over in Asia restrictions are being put on cash as well. Legendary investor Jim Rogers commented on what is currently happening in India during one recent podcast…
The time will come when you won’t be able to buy a cup of coffee without being traced, warns investment guru Jim Rogers. To control people, governments will increasingly seek to hunt down cash spending, he adds.
“Governments are always looking out for themselves first, and it’s the same old thing that has been going on for hundreds of years. The Indians recently did the same thing. They withdrew 86 percent of the currency in circulation, and they have now made it illegal to spend more than, I think it’s about $4,000 in any cash transaction. In France you cannot use more than, I think it’s a €1,000,” said Rogers in an interview with MacroVoices Podcast.
The reason why this is taking place all over the planet is because this is a global agenda.
The globalists ultimately plan to completely eliminate cash, and this will give them an unprecedented level of control over humanity.
One thing that many fear may someday be implemented is some form of microchip identification system. In order to access the cashless grid, you would need your “ID chip” so that the system could positively identify you, but of course there are millions of people around the world that do not intend to get chipped under any circumstances.
In the old days, you would be labeled a “conspiracy theorist” just for suggesting that they may try to chip all of us one day, but in 2017 things have completely changed.
Just look at what is happening in Nevada. A bill has been introduced in the state senate that would outlaw the “forced microchipping of people”…
State Sen. Becky Harris said a bill to prohibit forced microchipping of people is not as far-fetched as it might seem, because it happens in some places around the world.
Senate Bill 109 would make it a Class C felony to require someone to be implanted with a radio frequency identifier, such as microchips placed in pets.
The idea for the bill came from a constituent, the Las Vegas Republican said.
If that sounds very strange to you, then you may not know that companies all around the globe are already starting to explore this type of technology. For instance, a company in Belgium called NewFusion has actually begun to microchip their employees…
In a move that could be lifted straight from science fiction, workers at a Belgian marketing firm are being offered the chance to have microchips implanted in their bodies.
The chips contain personal information and provide access to the company’s IT systems and headquarters, replacing existing ID cards.
The controversial devices raise questions about personal security and safety, including whether they may allow the movements of people with implants to be tracked.
Technology like this often starts off being “voluntary”, but then after enough people willingly accept it the transition to “mandatory” is not too difficult.
We live at one of the most critical moments in all of human history, and the globalists are certainly not going to lay down and die just because Donald Trump won the election.
The U.S. represents less than five percent of the population of the planet, and in most of the world the agenda of the globalists is on track and is rapidly advancing.
The globalists want a unified one world economy, a unified one world religion and a unified one world government. The election of Donald Trump was a blow to the globalists, but it has also made them more dangerous, more ruthless and more determined than ever before.
And in case you think that using the term “globalists” is a bit strange, the truth is that even the New York Times is using it to describe the global elite and their global agenda.
We are in a life or death battle for the future of our society, and the globalists are never going to give up until they get what they want. So now is not a time for complacency, because the very future of our country is at stake.
The collapse of the euro is accelerating, and it looks like we could be staring a major European financial crisis right in the face early in 2017. On Thursday, the EUR/USD fell all the way to $1.0366 at one point before rebounding slightly. That represents the lowest that the euro has been relative to the U.S. dollar since January 2003. Ever since 2011, I have been relentlessly warning that the euro is heading for parity with the U.S. dollar. When the EUR/USD was trading at about $1.40 that must have seemed like crazy talk, but I never wavered. I just kept warning people that the euro was going to weaken greatly relative to the U.S. dollar. Here is one example from March 2015: “How many times have I said it? The euro is heading to all-time lows. It is going to go to parity with the U.S. dollar, and then it is eventually going to go below parity.” After Thursday, we are almost there, and once we do hit parity that is going to be a sign that all sorts of chaos is about to erupt in Europe.
For years, so many people that write about our coming economic problems have been proclaiming that the death of the U.S. dollar is imminent.
But I have always taken a different approach. I have always maintained that the collapse of the euro comes first, and that the death of the U.S. dollar happens some time later.
So many people have wanted to get rid of all of their dollars in anticipation of the coming crisis, but that is a huge mistake.
First of all, without exception everyone needs an emergency fund that can cover at least six months of expenses in case there is a job loss, a health emergency or all hell breaks loose for some reason.
Secondly, cash is going to be king during the initial stages of the coming crisis. Later on the U.S. dollar will rapidly lose value, but at first it will pay to have significant amounts of cash available to you.
Most people out there seem to think that a strong dollar is great news and that it is a sign of good things to come under Donald Trump.
But the truth is that an overly strong U.S. dollar is actually very bad news for the global economy.
For the U.S., a strong dollar hurts our exports and tends to drag down our GDP.
For the rest of the world, a strong dollar makes it more expensive to borrow money. The economic boom in the developing world following the last financial crisis was fueled by mountains of cheap dollars that were borrowed at ultra-low interest rates. But now the U.S. dollar is surging and interest rates are spiking, and that is starting to cause major problems.
It now takes much more local currency to pay back those dollar-denominated loans that were made in emerging markets during the boom times. If the U.S. dollar continues to rise we are going to see a staggering number of defaults, and a credit crunch in many areas of the globe seems inevitable at this point.
Of course the big thing to keep an eye on over the coming weeks is the rapidly unfolding crisis in Italy. The Italians have the 8th largest economy on the entire planet, and we are in the process of watching their entire banking system completely implode.
In fact, their third largest bank is in imminent danger of collapse, and according to Reuters this could trigger “a wider banking and political crisis in Italy”…
Italy’s government is ready to pump 15 billion euros into Monte dei Paschi di Siena (BMPS.MI) and other ailing banks, sources said, as the country’s third-largest lender pushes ahead with a private rescue plan that is widely expected to fail.
The world’s oldest bank has until Dec. 31 to raise 5 billion euros ($5.2 billion) in equity or face being wound down by the European Central Bank, potentially triggering a wider banking and political crisis in Italy.
If needed, the government will pump 15 billion euros into the Siena-based lender and several other smaller banks to prevent that, two sources close to the matter said on Thursday.
This is so much more serious than the ongoing economic depression in Greece.
Greece is just the 44th largest economy on the planet, and we saw how much trouble Europe had trying to bail them out.
So what is the rest of Europe going to do when financial collapse hits Italy?
Here in the United States very few people are interested in hearing about a “global financial crisis” right at this moment, because in the aftermath of the election most people are feeling really good about where things are heading. Just consider the following three facts that I pulled out of a Bloomberg article…
#1 “The National Association of Homebuilders’ index of sentiment soared to an 11-year high in December, despite the sizable rise in bond yields since the election.”
#2 “The University of Michigan’s December index of consumer confidence also continued its upward post-election trend, rising to 98. A sub-index that tracks respondents’ opinion of the government’s economic policies spiked to levels not seen since 2009.”
#3 “The National Federation of Independent Businesses’ index of optimism among small businesses posted its sharpest surge since 2009 in November to reach 98.4. An expected improvement in business conditions among small business owners surveyed after Nov. 8 was the largest contributor to the improvement in the headline print.”
Hopefully happy days will stick around for a while.
But it won’t last forever.
As I have warned so many times, the coming crisis is going to hit Europe first, and the United States will join the party not too long after.
And a key marker that we have been watching for is almost here. The euro is going to hit parity with the U.S. dollar just like I have been warning, and once that takes place expect events to start accelerating significantly.
Italian voters have embraced the global trend of rejecting the established world order, but the “no” vote on Sunday has plunged global financial markets into a state of utter chaos. The euro has already fallen to a 20 month low, Italian government bonds are poised for a tremendous crash, and futures markets are indicating that both U.S. and European stock markets will be way down when they open on Monday. It is being projected that Italian Prime Minister Matteo Renzi’s referendum on constitutional reforms will be defeated by about 20 percentage points when all the votes have been counted, and Renzi has already announced that he plans to resign as a result. When new elections are held it looks like comedian Beppe Grillo’s Five-Star movement will come to power, and the European establishment is extremely alarmed at that prospect because Grillo wants to take Italy out of the eurozone. In the long run Italy would be much better off without the euro, but in the short-term the only thing propping up Italy’s failing banking system is support from Europe. Without that support, the 8th largest economy on the entire planet would already be in the midst of an unprecedented financial crisis.
I know that I said a lot in that first paragraph, but it is imperative that people understand how serious this crisis could quickly become.
This “no” vote virtually guarantees a major banking crisis for Italy, and many analysts fear that it could trigger a broader financial crisis all across the rest of the continent as well.
Just look at what has already happened. All of the votes haven’t even been counted yet, and the euro is absolutely plummeting…
The euro dropped 1.3 percent to $1.0505, falling below its 1 1/2-year low of $1.0518 touched late last month, and testing its key support levels where the currency has managed to rebound in the past couple of years.
A break below its 2015 March low of $1.0457 would send the currency to its lowest level since early 2003, opening a way for a test of $1, or parity against the dollar, a scenario which many market players now see as a real possibility.
In early 2014, there were times when one euro was trading for almost $1.40. For a very long time I have been warning that the euro was eventually heading for parity with the U.S. dollar, and now we are almost there.
Meanwhile, Italian government bonds are going to continue to crash following this election result. This is going to make it even more difficult for the Italian government to borrow money, and that will only aggravate their ongoing financial troubles.
But the big problem in Italy is the banks. At this moment there are eight banks in imminent danger of collapsing, and virtually all of the rest of them are in some stage of trouble. The following comes from a Bloomberg article about the crisis that Italian banks are facing right at this moment…
They’re burdened with a mountain of bad loans. Their stocks have cratered. And they have to operate in an economy prone to recession and political upheaval.
Signs have been mounting for months that Italy’s weakest lenders, and in particular Banca Monte dei Paschi di Siena SpA, were sliding toward the precipice, threatening to reignite a broader crisis.
And we may get some news regarding the fate of Banca Monte dei Paschi di Siena as early as Monday morning if what the Sydney Morning Herald is reporting is correct…
A last-gasp rescue for Monte dei Paschi di Siena, the world’s oldest surviving bank, has been thrown into doubt after reformist prime minister Matteo Renzi decisively lost a referendum on constitutional reform on Sunday.
MPS and advisers JPMorgan and Mediobanca will meet as early as Monday morning to decide whether to pull a plan to go ahead with a €5bn recapitalisation, the FT reports, citing people informed of the plan.
Senior bankers will decide whether to pursue their underwriting commitments or exercise their right to drop the transaction due to adverse market conditions, these people said. In the event the banks drop the capital plan, the Italian state is expected to nationalise the bank, say senior bankers.
If Banca Monte dei Paschi di Siena fails, major banks all over Italy (and all over the rest of Europe) could start going down like dominoes.
So what were Italians voting on anyway?
Well, the truth is that the constitutional reforms that were proposed actually sound quite boring…
“The changes involve sharply reducing the size of one of the chambers of Parliament — the Senate — shifting its powers to the executive, and eliminating the Senate’s power to bring down government coalitions.
“The amendments also shift some powers now held by the regions to the central government, thereby reducing frequent and lengthy court battles between Rome and the regional governments.”
The reason why this vote was ultimately so important is because it became a referendum on Renzi’s administration. The fact that he announced in advance that he would resign if it did not get approved gave a tremendous amount of fuel to the opposition.
So now Beppe Grillo’s Five-Star Movement stands poised to come to power, and that could be very bad news for those that are hoping to hold the common currency together.
The following is how NPR recently summarized the main goals of the Five-Star Movement…
“It calls for a government-guaranteed, universal income, abolishing Italy’s fiscal commitments to the European Union and a referendum on Italy’s membership in the Euro — a prospect that could unravel the entire single currency Eurozone.”
If Italy chooses to leave the euro, it will probably mean the end of the common currency, and the continued existence of the entire European Union would be called into question.
So this vote on Sunday was huge. The Brexit had already done a tremendous amount of damage to the long-term prospects for the European Union, and now the crisis in Italy is sending political and financial shockwaves throughout the entire continent.
Over the next few weeks, keep a close eye on the euro and on Italian government bonds.
If they both continue to crash, that will be a sign that a major European financial crisis is now upon us.
And what happens in Europe definitely does not stay in Europe.
If Europe goes down, we are going to go down too.
At this point we still have almost a month left in 2016, but 2017 is already shaping up to be a very troubling year. As always, let us hope for the best, but let us also keep preparing for the worst.
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 has been called “the world’s most dangerous bank“. Over the past year, I have repeatedly warned that Deutsche Bank is heading for disaster and is a likely candidate to be “the next Lehman Brothers”. If you would like to review, you can do so here, here and here. 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 mis-handling 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.
At one point on Friday, Deutsche Bank stock fell below the 10 euro mark for the first time ever before bouncing back a bit. A completely unverified rumor that was spreading on Twitter that claimed that Deutsche Bank would settle with the Department of Justice for only 5.4 billion dollars was the reason for the bounce.
But the size of the fine is not really the issue now. 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, and nobody wants to be the idiot that offers Deutsche Bank a new source of liquidity at this point.
As a result, Deutsche Bank is potentially facing a “liquidity event” on a scale that we have not seen since the financial crisis of 2008. The following comes from Zero Hedge…
It is not solvency, or the lack of capital – a vague, synthetic, and usually quite arbitrary concept, determined by regulators – that kills a bank; it is – as Dick Fuld will tell anyone who bothers to listen – the loss of (access to) liquidity: cold, hard, fungible (something Jon Corzine knew all too well when he commingled and was caught) cash, that pushes a bank into its grave, usually quite rapidly: recall that it took Lehman just a few days for its stock to plunge from the high double digits to zero.
It is also liquidity, or rather concerns about it, that sent Deutsche Bank stock crashing to new all time lows earlier today: after all, the investing world already knew for nearly two weeks that its capitalization is insufficient. As we reported earlier this week, it was a report by Citigroup, among many other, that found how badly undercapitalized the German lender is, noting that DB’s “leverage ratio, at 3.4%, looks even worse relative to the 4.5% company target by 2018” and calculated that while he only models €2.9bn in litigation charges over 2H16-2017 – far less than the $14 billion settlement figure proposed by the DOJ – and includes a successful disposal of a 70% stake in Postbank at end-2017 for 0.4x book he still only reaches a CET 1 ratio of 11.6% by end-2018, meaning the bank would have a Tier 1 capital €3bn shortfall to the company target of 12.5%, and a leverage ratio of 3.9%, resulting in an €8bn shortfall to the target of 4.5%.
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.
Banking customers have a total of approximately 566 billion euros deposited with the bank, and even if a small fraction of those clients start demanding their money back it is going to cause a major, major crunch.
Deutsche Bank CEO John Cryan attempted to calm nerves on Friday by releasing a memo to employees that blamed “speculators” for the decline in the stock price…
Instead of doing what many have correctly suggested he should be doing, namely focusing on ways to raise more capital for the undercapitalized Deutsche Bank in order to stem the slow (at first) liquidity leak, first thing this morning CEO John Cryan issued another morale-boosting note to employees of Deustche Bank who have been watching their stock price crash to another record low, dipping under €10 in early trading for the first time ever. In the memo the embattled CEO worryingly did what Dick Fuld and other chief executives did when they felt the situation slipping out of control, namely blaming evil “rumor-spreading” shorts, saying “our bank has become subject to speculation. Ongoing rumours are causing significant swings in our stock price. … Trust is the foundation of banking. Some forces in the markets are currently trying to damage this trust.”
Just as important, Cryan confirms the Bloomberg report that “a few of our hedge fund clients have reduced some activities with us. That is causing unjustified concerns.” As we explained last night, the concerns are very much justified if they spread to the biggest risk-factor for the German bank: its depositors, which collectively hold over €550 billion in liquidity-providing instruments.
If you would like to ready the full memo, you can do so right here.
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.
Some firms that were derivatives clients of the bank have already gotten spooked and have moved their business to other institutions. It was this report from Bloomberg that really helped drive down the stock price of Deutsche Bank earlier this week…
The funds, a small subset of the more than 800 clients in the bank’s hedge fund business, have shifted part of their listed derivatives holdings to other firms this week, according to an internal bank document seen by Bloomberg News. Among them are Izzy Englander’s $34 billion Millennium Partners, Chris Rokos’s $4 billion Rokos Capital Management, and the $14 billion Capula Investment Management, said a person with knowledge of the situation who declined to be identified talking about confidential client matters.
“The issue here is now one of confidence,” said Chris Wheeler, a financial analyst with Atlantic Equities LLP in London.
So what comes next?
Monday is a banking holiday for Germany, so 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 is the scenario that Jeffrey Gundlach is suggesting…
But Jeffrey Gundlach, chief executive of DoubleLine Capital, said investors betting that Berlin would not rescue Deutsche could find themselves nursing big losses.
‘The market is going to push down Deutsche Bank until there is some recognition of support. They will get assistance, if need be,’ said Gundlach, who oversees more than $100 billion at Los Angeles-based DoubleLine.
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.
Personally, I don’t know exactly what will happen next, but it will be fascinating to watch.
The biggest and most important bank in the biggest and most important country in Europe continues to implode right in front of our eyes. If you follow my work regularly, you probably already know that I issued a major alarm about Deutsche Bank last September. Subsequently, Deutsche Bank stock hit an all-time low. Then I sounded the alarm about Deutsche Bank again back in May, and once again that was followed by another all-time low for Deutsche Bank. And then I warned about Deutsche Bank again in early June, and you can probably imagine what happened after that. Over the past year, this German banking giant has literally been coming apart at the seams, and in so many ways it is paralleling exactly what happened to Lehman Brothers back in 2008.
Today, we got some more bad news from Deutsche Bank. Compared to the exact same period last year, profits were down 98 percent. A nearly 100 percent drop in net income spooked a lot of investors, and Deutsche Bank shares got hit hard on Wednesday. Of course Deutsche Bank shares are already down by more than half over the past 12 months, and the financial sharks can smell blood in the water.
Just like Lehman Brothers in 2008, Deutsche Bank is essentially in panic mode at this point. They recently announced that they will be closing 188 branches and that 3,000 workers will be losing their jobs. But this could just be the beginning of the layoffs at the bank. According to some reports, the bank could cut up to 35,000 jobs by the year 2020, and CEO John Cryan recently admitted that they “may have to accelerate cost-cutting measures“.
What makes all of this even more alarming is that Deutsche Bank is widely considered to be “the most dangerous bank” on the entire planet. The following comes from a CNN article posted just today entitled “The world’s riskiest bank is in trouble“…
What is going on with Deutsche Bank?
Germany’s biggest lender was dubbed the world’s riskiest bank by the International Monetary Fund last month, just as one of its U.S. businesses failed a Federal Reserve stress test.
Its shares are down 45% this year, and on Wednesday it said second quarter profits were wiped out by a 98% slump in earnings. The stock fell 2.5% in Frankfurt.
The primary reason why Deutsche Bank is “the world’s riskiest bank” is because of the mammoth derivatives portfolio that is possesses. It currently has 42 trillion euros of exposure to derivatives, which is an amount of money about 13 times the size of the entire German economy.
When Deutsche Bank finally goes down for good, it is going to be “the shot heard around the financial world”, and it will be a disaster many times greater than the collapse of Lehman Brothers in 2008. Just consider what Jeff Gundlach had to say about the bank earlier this year…
“Banks are dying and policymakers don’t know what to do,” Gundlach said. “Watch Deutsche Bank shares go to single digits and people will start to panic… you’ll see someone say, ‘Someone is going to have to do something.'”
As I write this, shares of Deutsche Bank are sitting at just $13.63, and many experts are having a very difficult time finding any reason for optimism. In fact, Edward Misrahi has stated that the bank is his number one short trade, and Jim Collins says that “it is just impossible” to recommend buying shares of Deutsche Bank even at this depressed level…
As an equity analyst, it is just impossible to recommend shares of a bank that is not growing revenue. So really, Deutsche is an untouchable, and the stock market is trying — to the tune of a 58% decline in DB’s market value in 12 months — to recalibrate Deutsche’s market capitalization to the true value of its assets net of liabilities. That’s a painful journey.
I don’t mean to just pick on Deutsche Bank. Certainly there are a lot of other major banks around the globe that are also teetering on the brink right now. Just take a look at Italy. Basically their entire banking system is in the process of melting down.
But the utter collapse of Italy’s banking system won’t have the same kind of worldwide impact that the collapse of Deutsche Bank will.
Unlike some of his predecessors, CEO John Cryan is being honest about some of the struggles that Deutsche Bank is going through right now, and he admits that they may need to be “more ambitious in our restructuring”. The following comes from Business Insider…
Cryan said in a statement (emphasis ours):
“We have continued to de-risk our balance sheet, to invest in our processes and to modernize our infrastructure. However, if the current weak economic environment persists, we will need to be yet more ambitious in the timing and intensity of our restructuring.”
He said something similar in a note to employees (emphasis again ours):
“Here I would like to speak plainly. If this weak economic environment persists, we will need to be still more ambitious in our restructuring. We will do everything in our power to accelerate the measures we have already planned.”
Yes, I know that the stock market in the United States has been setting all sorts of all-time record highs lately.
But that doesn’t change what is going on in the rest of the world one bit.
The financial crisis that has been gripping Europe, Asia, South America and most of the rest of the planet since the second half of last year is accelerating.
And it is inevitable that the U.S. is going to be experiencing some very real pain in the not too distant future as well.
So even though things may seem a bit quiet this summer in the financial world, the truth is that there is a whole lot going on under the surface.
Deutsche Bank is one glaringly obvious example of this, but there are many others all over the globe. And not too long from now, the dominoes will begin to fall very rapidly.
Barack Obama’s “friend” in Turkey is a deeply corrupt radical Islamist dictator that has just staged a coup to consolidate his grip on power. As I have reported previously, 1,845 “journalists, writers and critics” have been arrested for “insulting” President Erdogan over just the past two years, and a couple of years ago he had a monstrous 1,100 room presidential palace built for himself that is 30 times larger than the White House. With each passing day, more evidence emerges which seems to indicate that the recent “coup” was a staged event meant to enable Erdogan and his allies to eliminate their enemies and solidify their stranglehold over the nation. At this point the number of victims of “Erdogan’s purge” has hit 50,000, but the final number will not be known for quite some time.
Of course there is a possibility that the coup was not staged, but if it wasn’t staged it was the worst military coup that I have seen in my entire lifetime. As Fox News has pointed out, not a single high level member of government was killed or detained…
Among the questions being asked are why coup plotters didn’t execute the most basic steps in seizing power, like securing Erdogan and other top officials. Not a single member of his cabinet and inner-circle AKP party leadership was detained. Nor did coup plotters effectively take control of TV, radio and internet outlets. The government TRT station and CNN Turk were for a time occupied by alleged coup plotters, who quickly retreated as the putsch fell apart.
It is being reported that soldiers that took part in the coup claimed “that they thought that they were taking part in military exercises”, and those running the “coup” allowed Erdogan’s plane to fly across the country without incident. Here is more from Fox News…
Coup plotters also failed to secure most airports and other transportation hubs, didn’t occupy or attack Erdogan’s $600 million presidential palace, and failed to intercept his plane before, during or after he flew from one of the country’s busiest and most accessible airports back to Istanbul. This despite the supposed active participation of top generals in Turkey’s Air Force, which maintains a fleet of F-16 aircraft easily capable of tracking, intercepting or – if it came to it – shooting down Erdogan’s plane.
There were opposition soldiers that did occupy Ataturk International Airport for a short time, but they suspiciously left just in time for Erdogan’s plane to land.
So much about this supposed “coup” absolutely stinks, and that includes the fact that lists of judges, teaches, soldiers and government officials to be rounded up after the coup appear to have been prepared ahead of time. This is so obvious that even the EU commissioner in charge of Turkey’s membership bid, Johannes Hahn, is commenting on it…
“It looks at least as if something has been prepared. The lists are available, which indicates it was prepared and to be used at a certain stage,” Hahn said.
“I’m very concerned. It is exactly what we feared.”
So far, at least 50,000 people have been rounded up or stripped of their positions since the coup. The following breakdown of “the purge” comes from the BBC …
- 6,000 military personnel have been arrested, with more than two dozen generals awaiting trial
- Nearly 9,000 police officers have been sacked
- Close to 3,000 judges have been suspended
- Some 1,500 employees of Turkey’s finance ministry have been dismissed
- 492 have been fired from the Religious Affairs Directorate
- More than 250 staff in Mr Yildirim’s office have been removed
Not included in that list are 15,200 education workers and 1,577 university deans that were just sacked…
But while Turkey’s press is already mostly under Erdogan’s control, it is the educational witch hunt fallout that is far more troubling, and just as expected over the past hour we have gotten a glimpse of just how extensive the Turkish’s president cleansing of secular society will be, when the state-run Anadolu news agency reported that Turkey’s ministry of education has sacked 15,200 personnel for alleged involvement with a group the government claims is responsible for Friday’s failed coup.
Even more shocking, Anadolu reports that Turkey’s Board of Higher Education has requested the resignations of all 1,577 university deans, effectively dismissing them. Of the deans dismissed, 1,176 worked in public universities and 401 in private institutions.
In addition, the teaching licenses of 21,000 teachers there were employed at private educational institutions have been revoked.
In one fell swoop, Erdogan is eliminating as much institutional opposition to his leadership as he possibly can. And not only is he stripping them of their jobs and arresting many of them, CNN is reporting that he actually wants to push for the death penalty for anyone that has any connection to “treason”…
Turkey’s President refuses to rule out the death penalty for thousands of people arrested after a failed military coup Friday, despite warnings that reintroducing capital punishment could dash Turkey’s chances of joining the European Union.
Speaking through his translator in an exclusive interview with CNN’s Becky Anderson, Turkish President Recep Tayyip Erdogan called the failed military coup a “clear crime of treason.”
The Turkish people have made it clear they want death for the “terrorists” who plotted the coup, Erdogan said in his first interview since the July 15 attempt.
Erdogan has been a radical Islamist throughout his entire political career, and his goal has always been to transform Turkey from a highly secular society into a highly Islamic one.
Sadly, now he has the power to do just that.
So what does the future hold for people of other faiths in Turkey? Well, we may have gotten some clues on the night of the alleged “coup”…
During the night of 15 July, unidentified assailants broke the glass panels in the door of the Malatya Protestant Church. The pastor, Tim Stone, said he thought someone with a grudge against the church had taken advantage of the general unrest.
Meanwhile, in Trabzon, on the northern coast, around 10 people smashed the windows of the Santa Maria Catholic Church, where in 2006 a priest, Fr. Andrea Santoro, was murdered. The attackers tried to break into the church, but a group of Muslim neighbors drove them away, before contacting a priest.
And as Erdogan continues to transform into a Turkish version of Adolf Hitler, he is putting his nation’s membership in NATO in jeopardy. The following comes from the Telegraph…
In an ideal world, it would be in everyone’s interests for Mr Erdogan to cease his efforts to turn Turkey into an Iranian-style Islamic republic, thereby allowing Turkey to retain its place at Nato’s top table. But if he really is determined to pursue his radical Islamist agenda, then Nato will have no option but to rid itself of its troublesome Turkish ally.
What is happening in Turkey right now is truly chilling.
A country that is already a member of NATO and that was supposed to become a member of the European Union is rapidly becoming a hardcore radical Islamic dictatorship.
Let us keep a close eye on these developments, because ultimately they could have tremendous implications for Europe and for the entire Middle East in the years ahead.
The fallout from the Brexit vote continues to rock the European financial system. On Wednesday, the British pound dropped to a fresh 31 year low as confidence in the currency continues to plummet. At one point it had fallen as low as $1.2796 before rebounding a bit. As I write this, it is still sitting at just $1.293. Meanwhile, the problems for the biggest banks in Europe just continue to mount. At one point on Wednesday Credit Suisse hit an all-time record low, and German banking giant Deutsche Bank closed the day at an all-time record closing low of 12.93. Overall, Europe’s Stoxx 600 Bank Index closed at the lowest level in almost five years. What we are watching is a full-blown financial meltdown in Europe, but because it is not personally affecting them yet, most Americans are not paying any attention to it.
The collapse of the British pound that we have seen since the Brexit vote has been nothing short of breathtaking. In fact, CNN says that this “is what a currency crash looks like”…
This is what a currency crash looks like. The pound has slumped to $1.28, its lowest level in more than three decades.
Investors are dumping the pound following Britain’s vote to leave the European Union on June 23. The pound has dropped roughly 15% since the referendum day, when it reached $1.50.
After appearing to stabilize, the pound resumed its decline this week after three big asset management firms halted withdrawals from real estate investment funds.
Of course this is likely only just the beginning. There are some analysts that are suggesting that the British pound could eventually hit parity with the U.S. dollar at some point. We are seeing seismic shifts on the foreign exchange market right now, and this is going to affect trillions of dollars worth of currency-related derivatives. It will be exceedingly interesting to see how all of this plays out.
Meanwhile, Deutsche Bank continues to get absolutely hammered.
If the biggest and most important bank in Germany is not completely imploding, then why does the stock price continue to crash time after time?
Since the start of 2016, the value of Deutsche Bank has fallen by half, and many have pointed out that the trajectory that it is on is very, very similar to Lehman Brothers in 2008.
My regular readers are probably sick and tired of hearing me warn about Deutsche Bank, so today I will let someone else do it. According to an article that was just published by the BBC, Deutsche Bank is now “the most dangerous bank in the world”…
Deutsche Bank shares hit a new record low today. It’s value has halved since the beginning of the year.
So is it now the most dangerous bank in the world?
According to the International Monetary Fund – yes.
Last week, the IMF said that, of the banks big enough to bring the financial system crashing down, Deutsche Bank was the riskiest. Not only that, Deutsche Bank’s US unit was one of only two of 33 big banks to fail tests of financial strength set by the US central bank earlier this year.
At this point Deutsche Bank is scrambling to raise cash to stave off an imminent implosion. Just today, I came across a report about how they plan to sell at least a billion dollars worth of shipping loans in order to bring in some much needed funds. Many of the steps that they are taking are reminiscent of what Lehman Brothers tried to do just prior to their collapse, and that alone should tell you something.
At the same time all of this is going on, things in Italy just continue to get even worse. As of this moment, approximately 17 percent of all bank loans held by Italian banks are considered to be “non-performing”. In other words, they are absolutely swamped by bad debts. At the height of the 2008 crisis, only about 5 percent of the loans held by U.S. banks were bad. So what we are watching unfold in Italy right now could definitely be described as “cataclysmic”.
Since the Brexit vote, Italian banks have been hit harder than anyone else. The following comes from CNN…
Shares in Italy’s Banca Monte Dei Paschi Di Siena have crashed 45% in 10 days, forcing regulators to temporarily ban short-selling in the stock. The bank has been given until Friday to come up with a plan to reduce its bad loans by 40% by 2018.
It’s not alone. Other Italian bank stocks have fallen by about 30% since June 23, when the U.K. voted to leave the European Union. Italian officials are trying to find ways to shore up the country’s financial system.
Italian banks have been choking on bad debt for years, but the U.K. vote has thrown their problems into sharp relief.
Personally, I have been amazed that the European financial system has been able to hold it together for this long. A total collapse was inevitable, but I really thought that it would have started before now. Up until this time we have seen small crisis after small crisis, but in 2016 the full-blown meltdown has finally arrived.
And this growing crisis in Europe is going to have a dramatic impact on the entire planet. Everywhere you look the economic fundamentals are getting worse, and if you won’t believe me, perhaps you will believe this editorial by Tim Quast on CNBC…
The bottom line is that the fundamentals of the economy and market don’t look good: Whoever you’re listening to — the Federal Reserve, to the Organization for Economic Cooperation and Development, to the International Monetary Fund — hoary heads of the dismal science see deepening malaise worsened by the Brexit, creaky European banks, possible copycat flight from the euro zone — even a slowdown for the U.S.
Can a market characterized by declining money flows, weakening fundamentals and arbitrage that has posted no material gain in over 18 months gather steam? Anything is possible. But it’s not a sound conclusion.
Whenever I post an article about Europe, it tends to get significantly less response than many of my other articles do.
But I hope that my fellow Americans will start paying attention to this growing crisis, because it is going to deeply affect all of us.
What is happening to the European financial system right now is truly history in the making, and I believe that it is going to be one of the biggest news stories of the second half of 2016.