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.
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.
Over the past 12 months, stock market investors around the planet have lost trillions of dollars. Since this time last June, stocks have crashed in 6 of the world’s 8 largest economies, and stocks in the other two are down as well. The charts that you are about to see are absolutely stunning, and they are clear evidence that a new global financial crisis has already begun. Of course it is true that we are still in the early chapters of this new crisis and that there is much, much more damage to be done, but let us not minimize the carnage that we have already witnessed.
In general, there have been three major waves of financial panic over the past 12 months. Late last August we saw the biggest financial shaking since the financial crisis of 2008, then in January and February there was an even bigger shaking, and now a third “wave” has begun in June. Not all areas around the globe have been affected equally by each wave, but without a doubt this new financial crisis is a global phenomenon.
The charts that I am about to show you come from Trading Economics. It is an absolutely indispensable website that is packed full of useful data, and I encourage everyone to check it out.
Let’s talk about China first. The Chinese economy is the second largest on the entire planet, and since this time last year Chinese stocks are down an astounding 40 percent…
As things have started to unravel in China, the Chinese have been selling off U.S. debt and U.S. stocks like crazy. The following comes from Bloomberg…
For the past year, Chinese selling of Treasuries has vexed investors and served as a gauge of the health of the world’s second-largest economy.
The People’s Bank of China, owner of the world’s biggest foreign-exchange reserves, burnt through 20 percent of its war chest since 2014, dumping about $250 billion of U.S. government debt and using the funds to support the yuan and stem capital outflows.
While China’s sales of Treasuries have slowed, its holdings of U.S. equities are now showing steep declines.
Unfortunately for China, their economy just continues to slow down, and George Soros is so alarmed by this and a potential “Brexit” that he has been selling off stocks and buying enormous amounts of gold in anticipation of an even bigger global downturn.
Japan has the third largest economy in the world, and over the past year Japanese stocks are down a total of 26 percent from the peak…
Personally, I have been extremely alarmed by what has been happening in Japan lately. Japanese stocks were down almost 500 points last night, and overall the Nikkei is down a whopping 1,800 points so far in June.
Of course the Japanese economy as a whole is essentially a basket case at this point. For a detailed analysis of this, please see my previous article entitled “Watch Japan – For All Is Not Well In The Land Of The Rising Sun“.
Germany has the fourth largest economy in the world, and over the past year their stocks have fallen 19 percent from the peak of the market…
The key thing to watch for in Germany are serious troubles at their biggest bank. I wrote a long article about the slow-motion implosion of Deutsche Bank last month, and just this week Deutsche Bank stock hit an all-time low.
The fifth largest economy on the planet belongs to the United Kingdom, and since last June their stocks have fallen about 13 percent…
One week from today, the “Brexit” vote will be held in the UK, and if they vote to leave the EU that could have very serious economic and financial implications for them and for the rest of Europe as well. For an in-depth look at this, please see my previous article entitled “June 23, 2016: The Brexit Vote Could Change EVERYTHING And Plunge Europe Into Financial Chaos“.
France has the sixth largest economy in the world, and over the past year French stocks are down 20 percent from the peak of the market…
The French economy is really struggling these days, and we have not heard much about it in the U.S. media, but there have been tremendous riots in major cities in France in recent weeks.
The seventh largest economy on our planet belongs to India. Even though India is facing some very serious economic problems, their stocks are doing okay for the moment. Even though stocks in India are down over the past 12 months, we have not seen a major financial crisis over there just yet.
But there is definitely a major crisis in the eighth largest economy in the world. Italian stocks are down a staggering 32 percent from the peak of the market. That means approximately a third of all stock market wealth in Italy is already gone…
Earlier this year, I wrote about the horrifying collapse of the Italian banking system that has greatly accelerated since the start of 2016. It looks like virtually all of their big banks will ultimately need to be bailed out, and this threatens to become a far bigger crisis than the crisis in Greece ever was.
And let us not leave off the ninth largest economy in the world. Not too long ago, CNN ran an article entitled “Brazil: Economic collapse worse than feared“. So not only are they admitting that the ninth largest economy on the globe is collapsing, they are also admitting that it is even worse than what the experts had anticipated.
So did I leave anyone off the list?
Ah yes, I haven’t even addressed what has been going on in the United States yet.
U.S. stocks did crash last August, but then they recovered.
Then they crashed again in January, but then they recovered again.
Now U.S. stocks have been taking another tumble here in June, but we are being assured that there is nothing to worry about.
Meanwhile, the underlying numbers for the U.S. economy just continue to get worse and worse and worse. If you have any doubt about this, please see the article that I posted yesterday entitled “15 Facts About The Imploding U.S. Economy That The Mainstream Media Doesn’t Want You To See“.
Hopefully this article will clear a lot of things up. In this piece, I have presented undeniable evidence that a new global financial crisis has begun over the past 12 months. We have not seen global stock declines of this nature since the great financial crisis of 2008, but much worse is still to come.
I would love to be wrong about that last part.
It would be wonderful if the worst was now behind us and good times for the global financial system were ahead.
Unfortunately, every single indicator that I am watching is telling me just the opposite.
*About the author: Michael Snyder is the founder and publisher of The Economic Collapse Blog. Michael’s controversial new book about Bible prophecy entitled “The Rapture Verdict” is available in paperback and for the Kindle on Amazon.com.*
If you have been waiting for “the next Lehman Brothers moment” which will cause the global financial system to descend into a state of mass panic, you might want to keep a close eye on German banking giant Deutsche Bank. It is approximately three times larger than Lehman Brothers was, and if the most important bank in the strongest economy in Europe were to implode, it would instantly send shockwaves rippling across the entire planet. Those that follow my work regularly know that I started sounding the alarm about Deutsche Bank beginning last September. Since that time, the bad news from Deutsche Bank has not stopped pouring in. They announced a loss of 6.8 billion euros for 2015, Moody’s just downgraded their debt to two levels above junk status, and they have been plagued by scandal after scandal. In recent months they have gotten into trouble for trying to rig precious metal prices, for committing “equity trading fraud” and for their dealings in mortgage-backed securities. The following comes from Zero Hedge…
A month after admitting to rigging precious metals markets, Deutsche Bank has been hit with a double-whammy of more alleged fraudulent behavior today and the stock is sliding. First, Reuters reports that the bank took a charge of 450 million euros for “equity trading fraud,” and then Bloomberg reports that The SEC is looking into Deutsche’s post-crisis mortgage positions.
This is a bank that is steadily bleeding money, and so the last thing that it needs is for government agencies to be putting immense pressure on it. Unfortunately for Deutsche Bank, the SEC seems determined to kick it while it is down…
Troubled Wall Street giant Deutsche Bank is under another investigation, this time by the Securities and Exchange Commission regarding the pricing and reporting of certain mortgage-backed securities.
The SEC wants to know whether the Frankfurt, Germany-based bank artificially raised the value of mortgage-backed securities in 2013 and later hid those losses for an extended period of time, Bloomberg first reported, citing people familiar with the matter.
But even if there were no scandals and no government investigations, the truth is that Deutsche Bank would be a deeply troubled bank anyway.
At one point, it was estimated that Deutsche Bank had 64 trillion dollars worth of exposure to derivatives contracts. That is an amount of money that is approximately 16 times the size of the GDP of the entire nation of Germany.
So nobody wants to see Deutsche Bank fail. It would be a financial disaster unlike anything the world has ever experienced before.
But right now things are not looking good. As you can see from this chart, the steady decline of Deutsche Bank’s stock price is eerily similar to what happened to Lehman Brothers during the months leading up to the time when it finally completely collapsed…
Earlier this year, Deutsche Bank’s stock price set a new record low, and since that time it has been hovering just above that record low.
Clearly it is no secret that Deutsche Bank is having big problems, and the outlook for the immediate future is not good. I included the following quote from Berenberg analyst James Chappell in a previous article, but I think that it bears repeating…
Too many problems still: The biggest problem is that DBK has too much leverage. On our measures, we believe DBK is still over 40x levered. DBK can either reduce assets or increase capital to rectify this. On the first path, the markets do not exist in the size nor pricing to enable it to follow this route. Going down the second path also seems impossible at the moment, as the profitability of the core business is under pressure. Seeking outside capital is also likely to be difficult as management would likely find it hard to offer any type of return on new capital invested.
In the end, I believe that Deutsche Bank will ultimately implode, but it won’t be the only one.
Meanwhile, we just got some more very disturbing news out of Asia. According to Bloomberg, Japanese exports have now fallen for seven months in a row…
Japan’s exports fell for a seventh consecutive month in April as the yen strengthened, underscoring the growing challenges to Prime Minister Shinzo Abe’s efforts to revive economic growth.
Overseas shipments declined 10.1 percent in April from a year earlier, the Ministry of Finance said on Monday. The median estimate of economists surveyed by Bloomberg was for a 9.9 percent drop. Imports fell 23.3 percent, leaving a trade surplus of 823.5 billion yen ($7.5 billion), the highest since March 2010.
When your imports are 23 percent lower than they were a year earlier, that is a clear sign that consumer demand is way, way down and that your economy is in the process of imploding.
So I will repeat what I have said a number of times before…
Watch Germany and watch Japan.
I believe that they are going to be two of the biggest stories as this new global financial crisis begins to play out.
*About the author: Michael Snyder is the founder and publisher of The Economic Collapse Blog. Michael’s controversial new book about Bible prophecy entitled “The Rapture Verdict” is available in paperback and for the Kindle on Amazon.com.*
On Tuesday junk bonds continued to crash, the price of oil briefly dipped below 28 dollars a barrel, Deutsche Bank was forced to deny that it is on the verge of collapse, but the biggest news was what happened in Japan. The Nikkei was down a staggering 918 points, but that stock crash made very few headlines in the western world. If the Dow had crashed 918 points today, that would have been the largest single day point crash in all of U.S. history. So what just happened in Japan is a really big deal. The Nikkei is now down 23.1 percent from the peak of the market, and that places it solidly in bear market territory. Overall, a total of 16.5 trillion dollars of global stock market wealth has been wiped out since the middle of 2015. As I stated yesterday, this is what a global financial crisis looks like.
Just as we saw during the last financial crisis, the big banks are playing a starring role, and this is definitely true in Japan. Right now, Japanese banking stocks are absolutely imploding, and this is what drove much of the panic last night. The following numbers come from Wolf Richter…
- Mitsubishi UFJ Financial Group plunged 8.7%, down 47% from June 2015.
- Mizuho Financial Group plunged 6.2%, down 38% since June 2015.
- Sumitomo Mitsui plunged 6.2%, down 26% since May 2015
- Nomura plunged a juicy 9.1%, down 42% since June 2015
A lot of analysts have been very focused on the downturn in China in recent months, but I think that it is much more important to watch Japan right now.
I have become fully convinced that the Japanese financial system is going to play a central role in the initial stages of this new global financial meltdown, and so I encourage everyone to keep a close eye on the Nikkei every single night.
Meanwhile, the stock price of German banking giant Deutsche Bank crashed to a record low on Tuesday. If you will recall, Deutsche Bank reported a loss of 7.6 billion dollars in 2015, and I wrote quite a bit about their ongoing problems yesterday.
Things have gotten so bad that now Deutsche Bank has been forced to come out and publicly deny that they are in trouble…
Deutsche Bank co-CEO John Cryan moved to quell fears about the bank’s stability Tuesday with a surprise memo saying its balance sheet “remains absolutely rock-solid.”
The comments come as investors grow increasingly nervous about the health of European banks, which have taken a hit on the fall in energy prices and which face rising concerns over their cash levels.
Of course Lehman Brothers issued the same kind of denials just before they collapsed in 2008. Cryan’s comments did little to calm the markets, and even Jim Cramer saw right through them…
“You know, Deutsche Bank puts out a note saying, ‘listen, don’t worry, all good.’ Reminds me of JPMorgan saying if you have to say that you’re creditworthy then it’s already too late.”
Another thing that Lehman Brothers did just before they collapsed in 2008 was to lay off workers. We have seen a number of major banks do this lately, including Deutsche Bank…
Cryan, 55, has been seeking to boost capital buffers and profitability by cutting costs and eliminating thousands of jobs as volatile markets undermine revenue and outstanding regulatory probes raise the specter of fresh capital measures to help cover continued legal charges. The cost of protecting Deutsche Bank’s debt against default has more than doubled this year, while the shares have dropped about 42 percent.
The following chart comes from Zero Hedge. Nobody on the Internet does a better job with charts than Zero Hedge does. I would recommend visiting them right after you visit The Economic Collapse Blog each day (wink wink). This chart shows that Deutsche Bank stock has already fallen lower than it was during any point during the last financial crisis…
Deutsche Bank is the biggest and most important bank in the biggest and most important economy in the EU, and it has exposure to derivatives that is approximately 20 times Germany’s GDP.
If that doesn’t alarm you, I don’t know what will.
The biggest financial bubble in the history of the world has entered a terminal phase, and the parallels to the last financial crisis have become so apparent that just about anyone can see them at this point. Just consider some of the ominous warnings that we have seen recently…
Billionaire Carl Icahn, for example, recently raised a red flag on a national broadcast when he declared, “The public is walking into a trap again as they did in 2007.”
And the prophetic economist Andrew Smithers warns, “U.S. stocks are now about 80% overvalued.”
Smithers backs up his prediction using a ratio which proves that the only time in history stocks were this risky was 1929 and 1999. And we all know what happened next. Stocks fell by 89% and 50%, respectively.
Even the Royal Bank of Scotland says the markets are flashing stress alerts akin to the 2008 crisis. They told their clients to “Sell Everything” because “in a crowded hall, the exit doors are small.”
And let’s not forget that famous billionaire retail magnate Hugo Salinas Price has warned that the global economy “is going into a depression“.
The chaos that we have seen this week is simply a logical progression of the crisis that began during the second half of last year. If you were to create a checklist of all the things that you would expect to see during the initial stages of a new financial crisis, all of the boxes would be checked.
In the days ahead, keep your eyes on Germany and Japan.
Yes, the Italian banking system is completely collapsing right now, but I believe that what is happening in Germany is going to be the key to the meltdown of Europe, and I am convinced that Deutsche Bank is going to be the star of the show.
Meanwhile, don’t underestimate what is taking place in Japan.
The Japanese still have the third largest economy on the entire planet, and their financial system is essentially a Ponzi scheme built on top of a house of cards that has a rapidly aging population as the foundation.
As Japan falls, that will be a signal that financial Armageddon is now upon us.
And after last night, it appears that moment is a lot closer than a lot of us may have thought.
There is so much chaos going on that I don’t even know where to start. For a very long time I have been warning my readers that a major banking collapse was coming to Europe, and now it is finally unfolding. Let’s start with Deutsche Bank. The stock of the most important bank in the “strongest economy in Europe” plunged another 8 percent on Monday, and it is now hovering just above the all-time record low that was set during the last financial crisis. Overall, the stock price is now down a staggering 36 percent since 2016 began, and Deutsche Bank credit default swaps are going parabolic. Of course my readers were alerted to major problems at Deutsche Bank all the way back in September, and now the endgame is playing out. In addition to Deutsche Bank, the list of other “too big to fail” banks in Europe that appear to be in very serious trouble includes Commerzbank, Credit Suisse, HSBC and BNP Paribas. Just about every major bank in Italy could fall on that list as well, and Greek bank stocks lost close to a quarter of their value on Monday alone. Financial Armageddon has come to Europe, and the entire planet is going to feel the pain.
The collapse of the banks in Europe is dragging down stock prices all over the continent. At this point, more than one-fifth of all stock market wealth in Europe has already been wiped out since the middle of last year. That means that we only have four-fifths left. The following comes from USA Today…
The MSCI Europe index is now down 20.5% from its highest point over the past 12 months, says S&P Global Market Intelligence, placing it in the 20% decline that unofficially defines a bear market.
Europe’s stock implosion makes the U.S.’ sell-off look like child’s play. The U.S.-centric Standard & Poor’s 500 Monday fell another 1.4% – but it’s only down 13% from its high. Some individual European markets are getting hit even harder. The Milan MIB 30, Madrid Ibex 35 and MSCI United Kingdom indexes are off 29%, 23% and 20% from their 52-week highs, respectively as investors fear the worse could be headed for the Old World.
These declines are being primarily driven by the banks. According to MarketWatch, European banking stocks have fallen for six weeks in a row, and this is the longest streak that we have seen since the heart of the last financial crisis…
The region’s banking gauge, the Stoxx Europe 600 Banks Index FX7, -5.59% has logged six straight weeks of declines, its longest weekly losing stretch since 2008, when banks booked 10 weeks of losses, beginning in May, according to FactSet data.
“The current environment for European banks is very, very bad. Over a full business cycle, I think it’s very questionable whether banks on average are able to cover their cost of equity. And as a result that makes it an unattractive investment for long-term investors,” warned Peter Garnry, head of equity strategy at Saxo Bank.
Overall, Europe’s banking stocks are down 23 percent year to date and 39 percent since the peak of the market in the middle of last year.
The financial crisis that began during the second half of 2015 is picking up speed over in Europe, and it isn’t just Deutsche Bank that could implode at any moment. Credit Suisse is the most important bank in Switzerland, and they announced a fourth quarter loss of 5.8 billion dollars. The stock price has fallen 34 percent year to date, and many are now raising questions about the continued viability of the bank.
Similar scenes are being repeated all over the continent. On Monday we learned that Russia had just shut down two more major banks, and the collapse of Greek banks has pushed Greek stock prices to a 25 year low…
Greek stocks tumbled on Monday to close nearly eight percent lower, with bank shares losing almost a quarter of their market value amid concerns over the future of government reforms.
The general index on the Athens stock exchange closed down 7.9 percent at 464.23 points — a 25-year-low — while banks suffered a 24.3-percent average drop.
This is what a financial crisis looks like.
Fortunately things are not this bad here in the U.S. quite yet, but we are on the exact same path that they are.
One of the big things that is fueling the banking crisis in Europe is the fact that the too big to fail banks over there have more than 100 billion dollars of exposure to energy sector loans. This makes European banks even more sensitive to the price of oil than U.S. banks. The following comes from CNBC…
The four U.S. banks with the highest dollar amount of exposure to energy loans have a capital position 60 percent greater than European banks Deutsche Bank, UBS, Credit Suisse and HSBC, according to CLSA research using a measure called tangible common equity to tangible assets ratio. Or, as Mayo put it, “U.S. banks have more quality capital.”
Analysts at JPMorgan saw the energy loan crisis coming for Europe, and highlighted in early January where investors might get hit.
“[Standard Chartered] and [Deutsche Bank] would be the most sensitive banks to higher default rates in oil and gas,” the analysts wrote in their January report.
There is Deutsche Bank again.
It is funny how they keep coming up.
In the U.S., the collapse of the price of oil is pushing energy company after energy company into bankruptcy. This has happened 42 times in North America since the beginning of last year so far, and rumors that Chesapeake Energy is heading that direction caused their stock price to plummet a staggering 33 percent on Monday…
Energy stocks continue to tank, with Transocean (RIG) dropping 7% and Baker Hughes (BHI) down nearly 5%. But those losses pale in comparison with Chesapeake Energy (CHK), the energy giant that plummeted as much as 51% amid bankruptcy fears. Chesapeake denied it’s currently planning to file for bankruptcy, but its stock still closed down 33% on the day.
And let’s not forget about the ongoing bursting of the tech bubble that I wrote about yesterday.
On Monday the carnage continued, and this pushed the Nasdaq down to its lowest level in almost 18 months…
Technology shares with lofty valuations, including those of midcap data analytics company Tableau Software Inc and Internet giant Facebook Inc, extended their losses on Monday following a gutting selloff in the previous session.
Shares of cloud services companies such as Splunk Inc and Salesforce.com Inc had also declined sharply on Friday. They fell again on Monday, dragging down the Nasdaq Composite index 2.4 percent to its lowest in nearly 1-1/2 years.
Those that read my articles regularly know that I have been warning this would happen.
All over the world we are witnessing a financial implosion. As I write this article, the Japanese market has only been open less than an hour and it is already down 747 points.
The next great financial crisis is already here, and right now we are only in the early chapters.
Ultimately what we are facing is going to be far worse than the financial crisis of 2008/2009, and as a result of this great shaking the entire world is going to fundamentally change.
Are we about to witness the most important global financial event since the collapse of Lehman Brothers in 2008? Glencore has been known as the largest commodities trading company on the entire planet, and at one time it was ranked as the 10th biggest company in the world. It is linked to billions of dollars of derivatives trades globally, and if the firm were to implode it would be a financial disaster unlike anything that we have seen in Europe since the end of World War II. Unfortunately, all signs are pointing to an inescapable death spiral for Glencore at this point. The stock price was down nearly 30 percent on Monday, and overall Glencore stock has plunged nearly 80 percent since May. There are certainly other candidates for “the next Lehman” (Petrobras and Deutsche Bank being two perfect examples), but Glencore has definitely surged to the front of the pack. Right now many analysts are openly wondering if the firm will even be able to survive to the end of next month.
If you are not familiar with Glencore, the following is a pretty good summary of the commodity trading giant from Wikipedia…
Glencore plc is an Anglo–Swiss multinational commodity trading and mining company headquartered in Baar, Switzerland, with its registered office in Saint Helier, Jersey. The company was created through a merger of Glencore with Xstrata on 2 May 2013. As of 2014, it ranked tenth in the Fortune Global 500 list of the world’s largest companies. It is the world’s third-largest family business.
As Glencore International, the company was already one of the world’s leading integrated producers and marketers of commodities. It was the largest company in Switzerland and the world’s largest commodities trading company, with a 2010 global market share of 60 percent in the internationally tradeable zinc market, 50 percent in the internationally tradeable copper market, 9 percent in the internationally tradeable grain market and 3 percent in the internationally tradeable oil market.
For months, I have been warning about the consequences of the crash that we have been witnessing in commodity prices. We saw a similar thing happen in 2008 just before the financial crisis that erupted in the fall of that year. If commodity prices kept going down (which they did), it was only a matter of time before firms like Glencore started imploding.
At this point, Glencore owes almost twice as much money as the entire firm is worth…
Now there is every chance the merged operation could implode. If it does, it will be the resources sector’s very own Lehman Brothers moment.
With debt approaching $US30 billion and a market value of just $US16 billion, shareholders and those holding the debt are desperately looking for an exit.
The cost of Glencore’s credit default swaps – a financial instrument that insures against a default – soared overnight.
Actually, “soared” is a horrible understatement.
The cost of insuring Glencore’s debt is absolutely screaming into the stratosphere. This is precisely what we would expect to see right before a “Lehman Brothers moment”. Here are some of the specific details from the Wall Street Journal…
Investors had to pay on Monday more than $790,000 a year to insure $10 million of Glencore debt against default for five years using credit default swaps, according to Markit, more than 40% higher than Friday. At the beginning of the year, the same insurance cost $154,000.
When Glencore goes down, they will take a whole lot of others with them. That is because Glencore is tied to trillions of dollars worth of derivatives trades all over the planet. According to Zero Hedge, we are looking at “the start of a self-fulfilling prophecy which leads to the Companys’s IG downgrade and the collapse of trillions in derivative notionals as what may be the trading desk of the biggest commodity counterparty quietly goes out of business.”
For years I have been ranting about the danger of derivatives. In article after article I warned that they would play a starring role in the next financial crisis.
Now the reality of what I was warning about is staring us right in the face.
The “nothing is happening” crowd is completely and utterly clueless. There are these people running around telling everyone that the stock market decline is “over” and that we aren’t about to experience another great financial crisis.
I don’t understand how these people can be so ignorant. Global giants such as Glencore, Petrobras and Deutsche Bank are imploding right in front of our eyes. As I write this, stocks in Hong Kong are down 744 points and stocks in Japan are down 677 points. The stock markets of the 10 largest economies on the entire planet are all crashing, but the mockers are going to continue to mock. They will continue to tell you that “nothing is happening” even in the face of undeniable evidence to the contrary.
And the sad thing is that many of these mockers are given air time on the big mainstream news networks. They will tell you that stocks are “oversold” and that you should “buy the dip” because stocks are going to be going back to record highs really soon.
I wish that was true. Unfortunately, the reality of the matter is that we are finally witnessing the bursting of the last great global financial bubble. I really like how Bill Holter put it recently…
In my opinion we are already well within the jaws of a meltdown/shutdown as liquidity is evaporating. There are a dozen developed countries with their stock markets already in bear markets (down 20% or more). All crashes come from oversold levels just as bank runs come on fast and are a surprise at the time. What is coming should be NO SURPRISE to anyone as we are looking at the end of not only an empire but of a flawed system which has endured for far too many years! This was a solvency problem in 2008 and “liquidity” was the incorrect tool used then. Now it is a bigger solvency problem with an illiquidity kicker attached …while the Fed has already used every tool imaginable and every last ounce of credibility. The loss of confidence in the issuer of the world’s reserve currency would be bad enough in an unlevered world, the loss of confidence in today’s “debt world” will be a DISASTER!
To wrap this up, do not let anything that may happen from here surprise you. The conditions are ripe for global currency crises and a shutdown of credit. The conditions are also ripe for hot war to explode in multiple venues. A meltdown or shutdown of markets will serve as a FINAL FLUSH of what remains left of the U.S. middle class.
We are steamrolling toward a global economic collapse that will be permanent and irreversible.
For months, I have been warning that we were witnessing a textbook example of what the lead up to a major financial crisis looks like, and now it is happening. All of this was completely and totally predictable for those that were willing to look at the signs.
Unfortunately, there are way too many people out there that think that they know it all and that have a tremendous amount of blind faith in the system.
Now the system is failing, and that blind faith is about to be shattered.
Is something about to happen in Germany that will shake the entire world? According to disturbing new intel that I have received, a major financial event in Germany could be imminent. Now when I say imminent, I do not mean to suggest that it will happen tomorrow. But I do believe that we have entered a season of time when another “Lehman Brothers moment” may occur. Most observers tend to regard Germany as the strong hub that is holding the rest of Europe together economically, but the truth is that serious trouble is brewing under the surface. As I write this, the German DAX stock index is down close to 20 percent from the all-time high that was set back in April, and there are lots of signs of turmoil at Germany’s largest bank. There are very few banks in the world that are more prestigious or more influential than Deutsche Bank, and it has been making headlines for all of the wrong reasons recently.
Just like we saw with Lehman Brothers, banks that are “too big to fail” don’t suddenly collapse overnight. The truth is that there are always warning signs in advance if you look closely enough.
In early 2014, shares of Deutsche Bank were trading above 50 dollars a share. Since that time, they have fallen by more than 40 percent, and they are now trading below 29 dollars a share.
It is common knowledge that the corporate culture at Deutsche Bank is deeply corrupt, and the bank has been exceedingly reckless in recent years.
If you are exceedingly reckless and you win all the time, that is okay. Unfortunately for Deutsche Bank, they have increasingly been on the losing end of things.
Prior to the “sudden collapse” of Lehman Brothers on September 15th, 2008, there had been media reports of mass layoffs at the firm. To give you just a couple of examples, CNBC reported on this on March 10th, 2008 and the New York Times reported on this on August 28th, 2008.
When big banks start getting into serious trouble, this is what they do. They start getting rid of staff. That is why the massive job cuts that Deutsche Bank just announced are so troubling…
Deutsche Bank aims to cut roughly 23,000 jobs, or about one quarter of total staff, through layoffs mainly in technology activities and by spinning off its PostBank division, financial sources said on Monday.
That would bring the group’s workforce down to around 75,000 full-time positions under a reorganization being finalised by new Chief Executive John Cryan, who took control of Germany’s biggest bank in July with the promise to cut costs.
Cryan presented preliminary details of the plan to members of the supervisory board at the weekend. A spokesman for the bank declined comment.
Deutsche Bank has also been facing mounting legal troubles. The following is a brief excerpt from a recent Zero Hedge article…
The bank, which has paid out more than $9 billion over the past three years alone to settle legacy litigation, has become something of a poster child for corrupt corporate culture.
In April, Deutsche settled rate rigging charges with the DoJ for $2.5 billion (or about $25,474 per employee) and subsequently 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.
But it was out of the frying pan and into the fire so to speak, because early last month, the DoJ announced it would seek to extract a fresh round of MBS-related settlements from banks that knowingly packaged and sold shoddy CDOs in the lead up to the crisis. JP Morgan, Bank of America, and Citi settled MBS probes when the DoJ was operating under the incomparable (and we mean that in a derisive way) Eric Holder but now, emboldened by her pyrrhic victory over Wall Street’s FX manipulators, new Attorney General Loretta Lynch is set to go after Barclays PLC, Credit Suisse Group AG, Deutsche Bank AG, HSBC Holdings PLC, Royal Bank of Scotland Group PLC,UBS AG and Wells Fargo & Co.
Of course the legal troubles are just the tip of the iceberg of what has been going on over at Deutsche Bank over the past couple of years. The following is a pretty good timeline of some of the major events that have hit Deutsche Bank since the beginning of last year. It comes from a NotQuant article that was published back in June entitled “Is Deutsche Bank the next Lehman?“…
- In April of 2014, Deutsche Bank was forced to raise an additional 1.5 Billion of Tier 1 capital to support its 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 its 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 its payment to the IMF. The risk of default across all of its 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 its collapse by just 3 months)
Are you starting to get the picture? These are not signs of a healthy bank.
What makes things even worse is how recklessly Deutsche Bank has been behaving. At one point, it was estimated that Deutsche Bank had a staggering 75 trillion dollars worth of exposure to derivatives. Keep in mind that German GDP for an entire year is only about 4 trillion dollars. So when Deutsche Bank finally collapses, there won’t be enough money in Europe (or anywhere else for that matter) to clean up the mess. This is a perfect example of why I am constantly hammering on the danger of these “weapons of financial mass destruction”.
If Deutsche Bank were to totally collapse, it would be a financial disaster far worse than Lehman Brothers. It would literally take down the entire European financial system and cause global financial panic on a scale that none of us have ever seen before.
On a personal note, I apologize for not posting anything last week. I traveled to two very important conferences and was living out of a suitcase for about eight days.
There has been a bit of a lull in the action over the past couple of weeks, but I expect that to end very shortly. I believe that the rest of 2015 is going to be incredibly chaotic, and we are going to see some things happen that most people could not even conceive of right now.
In the days that are directly ahead, I encourage people to keep a close eye on both Germany and Japan.
Big things are about to happen, and millions are about to be totally shaken out of their complacency.