Bank

The Deutsche Bank Death Watch Has Taken A Very Interesting Turn

The biggest bank in Europe is in the process of imploding, and there are persistent rumors that the final collapse could happen sooner rather than later.  Those that follow my work on a regular basis already know that this is a story that I have been following for years.  Deutsche Bank is rapidly bleeding cash, they have been laying off thousands of workers, and the vultures have been circling as company executives desperately try to implement a turnaround plan.  Unfortunately for Deutsche Bank, it may already be too late.  And if Deutsche Bank goes down, it will be even more catastrophic for the global financial system than the collapse of Lehman Brothers was in 2008.  Germany is the glue that is holding the EU together, and so if the bank that is right at the heart of Germany’s financial system collapses, the dominoes will likely start falling very rapidly.

There has been a tremendous amount of speculation about Deutsche Bank over the past several days, and so let’s start with what we know.

We know that Deutsche Bank has been losing money at a pace that is absolutely staggering…

Deutsche Bank reported a net loss that missed market expectations on Wednesday as a major restructuring plan continues to weigh on the German lender.

It reported a net loss of 832 million euros ($924 million) for the third quarter of 2019. Analysts were expecting a loss of 778 million euros, according to data from Refinitiv. It had reported a net profit of 229 million euros in the third quarter of 2018, but a loss of 3.15 billion euros in the second quarter of this year.

If you add the losses for the second and third quarter of 2019 together, you get a grand total of nearly 4 billion euros.

How in the world is it possible to lose that much money in just 6 months?

If all they had their employees doing was flushing dollar bills down the toilet for 6 months, it still shouldn’t be possible to lose that kind of money.

When investors learned of Deutsche Bank’s third quarter results last week, shares of the bank went down about 8 percent in a single day.

Overall, the stock price has lost over a quarter of its value over the past year.

Unless you enjoy financial pain, I have no idea why anyone would want to be holding Deutsche Bank stock at this point.  As I have previously warned, it is eventually going to zero, and the only question remaining is how quickly it will get there.

We also know that Deutsche Bank has been laying off thousands of workers all over the world…

On July 8, 2019, thousands of Deutsche Bank employees across the globe arrived at their offices, unaware that they would be leaving again, jobless, just a few hours later. In Tokyo, entire teams of equity traders were dismissed on the spot, while some London staff were reportedly told they had until 11am to leave the bank’s Great Winchester Street offices before their access cards stopped working.

The job cuts, which totalled 18,000, or around 20 percent of Deutsche Bank’s workforce, were the flagship element of a restructuring plan designed to save the ailing German lender.

The day before those layoffs happened, most of those employees would have probably told you that Deutsche Bank is in good shape and has a very bright future ahead.

Just like we witnessed with Lehman Brothers, there is always an effort to maintain the charade until the very last minute.

But the truth is that anyone with half a brain can see that Deutsche Bank is dying.  There have been so many bad decisions, so many aggressive bets have gone bad, and there has been one scandal after another…

In April 2015, the bank paid a combined $2.5bn in fines to US and UK regulators for its role in the LIBOR-fixing scandal. Just six months later, it was forced to pay an additional $258m to regulators in New York after it was caught trading with Myanmar, Libya, Sudan, Iran and Syria, all of which were subject to US sanctions at the time. These two fines, combined with challenging market conditions, led the bank to post a €6.7bn ($7.39bn) net loss for 2015. Two years later, it paid a further $425m to the New York regulator to settle claims that it had laundered $10bn in Russian funds.

At this point, it is just a zombie bank that is stumbling along until someone finally puts it out of its misery.

Money is so tight at Deutsche Bank that they have even cancelled the Christmas reception for retired employees…

Times change. Once upon a time (2001, in fact), Deutsche Bank was able to book stars like Robbie Williams for its staff Christmas party, with a Spice Girl turning up too just because it was such a great party. Now, according to the FT, Christian Sewing has even cancelled the daytime coffee-and-cake Christmas reception for retired employees.

Of course saving a few bucks on coffee and cake is not going to make a difference for a bank with tens of trillions of dollars of exposure to derivatives.

Deutsche Bank is the largest domino in Europe’s very shaky financial system.  When it fully collapses, it will set off a chain reaction that nobody is going to be able to stop.  David Wilkerson once warned that the financial collapse of Europe would begin in Germany, and Jim Rogers has warned that the implosion of Deutsche Bank would cause the entire EU to “disintegrate”…

Then the EU would disintegrate, because Germany would no longer be able to support it, would not want to support it. A lot of other people would start bailing out; many banks in Europe have problems. And if Deutsche Bank has to fail – that is the end of it. In 1931, when one of the largest banks in Europe failed, it led to the Great Depression and eventually the WWII. Be worried!

Sadly, most Americans can’t even spell “Deutsche Bank”, and they certainly don’t know that it is the most important bank in all of Europe.

But those that understand the times we are living in are watching Deutsche Bank very carefully, because if it implodes global financial chaos will certainly follow.

About the Author: I am a voice crying out for change in a society that generally seems content to stay asleep. My name is Michael Snyder and I am the publisher of The Economic Collapse Blog, End Of The American Dream and The Most Important News, and the articles that I publish on those sites are republished on dozens of other prominent websites all over the globe. I have written four books that are available on Amazon.com including The Beginning Of The End, Get Prepared Now, and Living A Life That Really Matters. (#CommissionsEarned) By purchasing those books you help to support my work. I always freely and happily allow others to republish my articles on their own websites, but due to government regulations I need those that republish my articles to include this “About the Author” section with each article. In order to comply with those government regulations, I need to tell you that the controversial opinions in this article are mine alone and do not necessarily reflect the views of the websites where my work is republished. This article may contain opinions on political matters, but it is not intended to promote the candidacy of any particular political candidate. The material contained in this article is for general information purposes only, and readers should consult licensed professionals before making any legal, business, financial or health decisions. Those responding to this article by making comments are solely responsible for their viewpoints, and those viewpoints do not necessarily represent the viewpoints of Michael Snyder or the operators of the websites where my work is republished. I encourage you to follow me on social media on Facebook and Twitter, and any way that you can share these articles with others is a great help.

A Bank With 49 Trillion Dollars In Exposure To Derivatives Is Melting Down Right In Front Of Our Eyes

Could it be possible that we are on the verge of the next “Lehman Brothers moment”?  Deutsche Bank is the most important bank in all of Europe, it has 49 trillion dollars in exposure to derivatives, and most of the largest “too big to fail banks” in the United States have very deep financial connections to the bank.  In other words, the global financial system simply cannot afford for Deutsche Bank to fail, and right now it is literally melting down right in front of our eyes.  For years I have been warning that this day would come, and even though it has been hit by scandal after scandal, somehow Deutsche Bank was able to survive until now.  But after what we have witnessed in recent days, many now believe that the end is near for Deutsche Bank.  On July 7th, they really shook up investors all over the globe when they laid off 18,000 employees and announced that they would be completely exiting their global equities trading business…

It takes a lot to rattle Wall Street.

But Deutsche Bank managed to. The beleaguered German giant announced on July 7 that it is laying off 18,000 employees—roughly one-fifth of its global workforce—and pursuing a vast restructuring plan that most notably includes shutting down its global equities trading business.

Though Deutsche’s Bloody Sunday seemed to come out of the blue, it’s actually the culmination of a years-long—some would say decades-long—descent into unprofitability and scandal for the bank, which in the early 1990s set out to make itself into a universal banking powerhouse to rival the behemoths of Wall Street.

These moves may delay Deutsche Bank’s inexorable march into oblivion, but not by much.

And as Deutsche Bank collapses, it could take a whole lot of others down with it at the same time.  According to Wall Street On Parade, the bank had 49 trillion dollars in exposure to derivatives as of the end of last year…

During 2018, the serially troubled Deutsche Bank – which still has a vast derivatives footprint in the U.S. as counterparty to some of the largest banks on Wall Street – trimmed its exposure to derivatives from a notional €48.266 trillion to a notional €43.459 trillion (49 trillion U.S. dollars) according to its 2018 annual report. A derivatives book of $49 trillion notional puts Deutsche Bank in the same league as the bank holding companies of U.S. juggernauts JPMorgan Chase, Citigroup and Goldman Sachs, which logged in at $48 trillion, $47 trillion and $42 trillion, respectively, at the end of December 2018 according to the Office of the Comptroller of the Currency (OCC). (See Table 2 in the Appendix at this link.)

Yes, the actual credit risk to Deutsche Bank is much, much lower than the notional value of its derivatives contracts, but we are still talking about an obscene amount of exposure.

And this is especially true when we consider the state of Deutsche Bank’s balance sheet.  According to Nasdaq.com, as of the end of last year the bank had total assets of 1.541 trillion dollars and total liabilities of 1.469 trillion dollars.

In other words, there wasn’t much equity there at the end of December, and things have deteriorated rapidly since that time.  In fact, it is being reported that a billion dollars a day is being pulled out of the bank at this point.

I know that most Americans don’t really care if Deutsche Bank lives or dies, but as the New York Post has pointed out, the failure of Deutsche Bank could quickly become a major crisis for the entire global financial system…

But the important fact to remember is that Deutsche Bank traded these derivatives with other financial firms. So, is this going to be another Lehman Brothers situation whereby one bank’s problems becomes other banks’ problems?

Pay close attention to this.

If the situation gets out of hand, the Federal Reserve and other central banks will have no choice but to cut interest rates even if it’s not the best thing for the world economies.

In particular, some of the largest “too big to fail banks” in the United States are “heavily interconnected financially” to Deutsche Bank.  The following comes from Wall Street On Parade…

We know that Deutsche Bank’s derivative tentacles extend into most of the major Wall Street banks. According to a 2016 report from the International Monetary Fund (IMF), Deutsche Bank is heavily interconnected financially to JPMorgan Chase, Citigroup, Goldman Sachs, Morgan Stanley and Bank of America as well as other mega banks in Europe. The IMF concluded that Deutsche Bank posed a greater threat to global financial stability than any other bank as a result of these interconnections – and that was when its market capitalization was tens of billions of dollars larger than it is today.

Until these mega banks are broken up, until the Fed is replaced by a competent and serious regulator of  bank holding companies, and until derivatives are restricted to those that trade on a transparent exchange, the next epic financial crash is just one counterparty blowup away.

As long as I have been doing this, I have been warning my readers to watch the global derivatives market.  It played a starring role during the last financial crisis, and it will play a starring role in the next one too.

The fundamental structural problems that were exposed during 2008 and 2009 were never fixed.  In fact, many would argue that the global financial system is even more vulnerable today than it was back during that time.

And now it appears that the next “Lehman Brothers moment” may be playing out right in front of our eyes.

Now more than ever, keep a close eye on Deutsche Bank, because it appears that they could be the first really big domino to fall.

About the author: Michael Snyder is a nationally-syndicated writer, media personality and political activist. He is the author of four books including Get Prepared Now, The Beginning Of The End and Living A Life That Really Matters. His articles are originally published on The Economic Collapse Blog, End Of The American Dream and The Most Important News. From there, his articles are republished on dozens of other prominent websites. If you would like to republish his articles, please feel free to do so. The more people that see this information the better, and we need to wake more people up while there is still time.

Global Banking Stocks Are Crashing Hard – Just Like They Did In 2008

Global stocks are falling precipitously once again, and banking stocks are leading the way.  If this reminds you of 2008, it should, because that is precisely what we witnessed back then.  Banking stocks collapsed as fear gripped the marketplace, and ultimately many large global banks had to be bailed out either directly or indirectly by their national governments as they failed one after another.  The health of the banking system is absolutely paramount, because the flow of money is our economic lifeblood.  When the flow of money tightens up during a credit crunch, the consequences can be rapid and dramatic just like we witnessed in 2008.

So let’s keep a very close eye on banking stocks.  Global systemically important bank stocks surged in the aftermath of Trump’s victory in 2016, but now they are absolutely plunging.  They are now down a whopping 27 percent from the peak, and that puts them solidly in bear market territory.

U.S. banking stocks are not officially in bear market territory yet, but they are getting close.  At this point, they are now down 17 percent from the peak…

Monday early afternoon, the US KBW Bank index, which tracks large US banks and serves as a benchmark for the banking sector, is down 2.5% at the moment. It has dropped 17% from its post-Financial Crisis high on January 29.

Of course European banking stocks are doing much worse.  Right now they are down 27 percent from the peak and 23 percent from a year ago.  The following comes from Wolf Richter…

But unlike their American brethren, the European banks have remained stuck in the miserable Financial Crisis mire – a financial crisis that in Europe was followed by the Euro Debt Crisis. The Stoxx 600 bank index, which covers major European banks, including our hero Deutsche Bank, has plunged 27% since February 29, 2018, and is down 23% from a year ago

I wish that we didn’t have a global economic system that was so dependent on the “too big to fail” banks, but we do.

If they aren’t healthy, nobody is going to be healthy for long, and it is starting to look and feel a whole lot like 2008.

But unlike 2008, we also have a global trade war to contend with.  The CEO of one yacht company recently told USA Today that tariffs have had a “catastrophic” effect on his company…

Tariffs imposed on goods by the European Union, and the Chinese and American governments on boats, cribs, bourbon, and more have put Wisconsin businesses between a rock and a hard place. The tariffs imposed are already damaging a bloated bubble economy and the hardships are just beginning.

“It’s been catastrophic,” said Rob Parmentier, who is the president and CEO of Marquis-Larson Boat Group, which builds Carver yachts in Pulaski, Wisconsin. According to USA Today, the first “hand grenade,” as Parmentier described it, tossed during the trade wars at him specifically, was a 25 percent tariff the European Union placed this year on boats built in the United States, along with scores of other products including Harley-Davidson motorcycles.

I have previously warned my readers that the damage caused by this trade war would get progressively worse the longer that it lasts.

Many companies have been trying to ride it out, but eventually the money runs out and layoffs start happening…

“We’ve had a lot of order cancellations. Canada and Europe have essentially stopped buying boats,” Parmentier said according to USA Today. “We’ve been absorbing some of the additional costs … hoping the tariffs will go away. But we can only do that for so long,” he said. The next step is layoffs.

Anyone that thought that this trade war would not have very serious consequences was just fooling themselves.  According to one source, tariffs paid by U.S. businesses are up 45 percent compared to a year ago…

“For the most recent months available, August 2018, the amount of tariffs paid increased by $1.4 billion — or 45% — as compared to tariffs paid in August 2017. Tariff costs in Michigan tripled to $178 million and more than doubled in multiple states — to $424 million in Texas, $193 million in Illinois, $50 million in Alabama, $29 million in Oklahoma, $23 million in Louisana, and $7.3 million in West Virginia.

These costs strain businesses of all sizes but are particularly painful for small business, manufacturers, and consumers who bear the burden of tariff increases in the form of higher prices,” via the data compiled by The Trade Partnership and released by Tariffs Hurt the Heartland.

And it doesn’t look like this trade war is going to end any time soon.  In fact, one key Chinese official recently made it very clear that China is not afraid of a long trade war…

On Monday in Beijing, Zhang Qingli, a leading member of a Chinese committee tasked with forging alliances with other nations, told a small group of U.S. business leaders, lobbyists and public relations executives that China refuses to be intimidated by an ongoing trade war with the Trump administration.

“China never wants a trade war with anybody, not to mention the U.S., who has been a long term strategic partner, but we also do not fear such a war,” Zhang said through a translator, according to a meeting attendee who declined to be named.

We are entering a time when the economy was likely to slow down anyway, but if stocks continue to crash and global banking woes escalate, that is going to spread fear and panic like wildfire.

And when there is fear and panic in the air, lending tends to really tighten up, and a major credit crunch is just about the last thing that we need right now.

It’s been a really bad October for global markets so far, and more trouble is brewing.  Hold on to your hats, because it looks like it is going to be a bumpy ride ahead.

About the author: Michael Snyder is a nationally syndicated writer, media personality and political activist. He is publisher of The Most Important News and the author of four books including The Beginning Of The End and Living A Life That Really Matters.

The Last Days Warrior Summit is the premier online event of 2018 for Christians, Conservatives and Patriots.  It is a premium-members only international event that will empower and equip you with the knowledge and tools that you need as global events begin to escalate dramatically.  The speaker list includes Michael Snyder, Mike Adams, Dave Daubenmire, Ray Gano, Dr. Daniel Daves, Gary Kah, Justus Knight, Doug Krieger, Lyn Leahz, Laura Maxwell and many more. Full summit access will begin on October 25th, and if you would like to register for this unprecedented event you can do so right here.

The Next Financial Crisis Has Already Arrived In Europe, And People Are Starting To Freak Out

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.

Deutsche Bank Collapse: The Most Important Bank In Europe Is Facing A Major ‘Liquidity Event’

toilet-paper-stock-market-collapse-public-domainThe 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.

‘Currency Crash’ Drives British Pound To A 31 Year Low As Deutsche Bank Sinks To The Lowest Level Ever

British Pound Brexit - Public DomainThe 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.

20th Largest Bank In The World: 2016 Will Be A ‘Cataclysmic Year’ And ‘Investors Should Be Afraid’

Royal Bank Of ScotlandThe Royal Bank of Scotland is telling clients that 2016 is going to be a “cataclysmic year” and that they should “sell everything”.  This sounds like something that you might hear from The Economic Collapse Blog, but up until just recently you would have never expected to get this kind of message from one of the twenty largest banks on the entire planet.  Unfortunately, this is just another indication that a major global financial crisis has begun and that we are now entering a bear market.  The collective market value of companies listed on the S&P 500 has dropped by about a trillion dollars since the start of 2016, and panic is spreading like wildfire all over the globe.  And of course when the Royal Bank of Scotland comes out and openly says that “investors should be afraid” that certainly is not going to help matters.

It amazes me that the Royal Bank of Scotland is essentially saying the exact same thing that I have been saying for months.  Just like I have been telling my readers, RBS has observed that global markets “are flashing the same stress alerts as they did before the Lehman crisis in 2008″…

RBS has advised clients to brace for a “cataclysmic year” and a global deflationary crisis, warning that the major stock markets could fall by a fifth and oil may reach US$16 a barrel.

The bank’s credit team said markets are flashing the same stress alerts as they did before the Lehman crisis in 2008.

So what should our response be to these warning signs?

According to RBS, the logical thing to do is to “sell everything” excerpt for high quality bonds…

“Sell everything except high quality bonds,” warned Andrew Roberts in a note this week.

He said the bank’s red flags for 2016 — falling oil, volatility in China, shrinking world trade, rising debt, weak corporate loans and deflation — had all been seen in just the first week of trading.

“We think investors should be afraid,” he said.

And of course RBS is not the only big bank issuing these kinds of ominous warnings.

The biggest bank in America, J.P. Morgan Chase, is “urging investors to sell stocks on any bounce”…

J.P. Morgan Chase has turned its back on the stock market: For the first time in seven years, the investment bank is urging investors to sell stocks on any bounce.

“Our view is that the risk-reward for equities has worsened materially. In contrast to the past seven years, when we advocated using the dips as buying opportunities, we believe the regime has transitioned to one of selling any rally,” Mislav Matejka, an equity strategist at J.P. Morgan, said in a report.

Aside from technical indicators, expectations of anemic corporate earnings combined with the downward trajectory in U.S. manufacturing activity and a continued weakness in commodities are raising red flags.

Major banks have not talked like this since the great financial crisis of 2008/2009.  Clearly something really big is going on.  Trillions of dollars of financial wealth were wiped out around the world during the last six months of 2015, and trillions more dollars have been wiped out during the first 12 days of 2016.  As I noted above, the collective market value of the S&P 500 is down by about a trillion dollars all by itself.

One of the big things driving all of this panic is the stunning collapse in the price of oil.  U.S. oil was trading as low as $29.93 a barrel on Tuesday, and this was the first time that oil has traded under 30 dollars a barrel since December 2003.

Needless to say, this collapse is absolutely killing energy companies.  The following comes from USA Today…

There aren’t many people who feel bad for oil companies. But the implosion in oil prices is causing a profit decline that almost invokes pity.

The companies in the Standard & Poor’s 500 energy sector are expected to lose a collective $28.8 billion this calendar year, down from $95.4 billion in net income earned during the industry’s bonanza year of 2008, according to a USA TODAY analysis of data from S&P Capital IQ. That’s a $124 billion swing against energy companies – and one you’re probably enjoying at the pump. The analysis includes only the 36 S&P 500 energy companies that reported net income in 2008.

If we are to avoid a major global deflationary crisis, we desperately need the price of oil to get back above 50 dollars a barrel.  Unfortunately, that does not appear to be likely to happen any time soon.  In fact, Dallas Fed President Robert Kaplan says that the price of oil is probably going to stay very low for years to come…

You’d expect at least some artificial optimism when the president of the Dallas Fed talks about oil. You’d expect some droplets of hope for that crucial industry in Texas. But when Dallas Fed President Robert Kaplan spoke on Monday, there was none, not for 2016, and most likely not for 2017 either, and maybe not even for 2018.

The wide-ranging speech included a blunt section on oil, the dismal future of the price of oil, the global and US causes for its continued collapse, and what it might mean for the Texas oil industry: “more bankruptcies, mergers and restructurings….”

The oil price plunge since mid-2014, with its vicious ups and downs, was bad enough. But since the OPEC meeting in December, he said, “the overall tone in the oil and gas sector has soured, as expectations have decidedly shifted to an ‘even lower for even longer’ price outlook.”

In recent articles I have discussed so many of the other signs that indicate that there is big trouble ahead, but today I just want to quickly mention another one that has just popped up in the news.

The amount of stuff being shipped across the U.S. by rail has been dropping dramatically.  The only times when we have seen similar large drops has been during previous recessions.  The following comes from Bloomberg…

Railroad cargo in the U.S. dropped the most in six years in 2015, and things aren’t looking good for the new year.

“We believe rail data may be signaling a warning for the broader economy,” the recent note from Bank of America says. “Carloads have declined more than 5 percent in each of the past 11 weeks on a year-over-year basis. While one-off volume declines occur occasionally, they are generally followed by a recovery shortly thereafter. The current period of substantial and sustained weakness, including last week’s -10.1 percent decline, has not occurred since 2009.”

BofA analysts led by Ken Hoexter look at the past 30 years to see what this type of steep decline usually means for the U.S. economy. What they found wasn’t particularly encouraging: All such drops in rail carloads preceded, or were accompanied by, an economic slowdown (Note: They excluded 1996 due to an extremely harsh winter).

The “next economic downturn” is already here, and it is starting to accelerate.

Yes, the financial markets are starting to catch up with economic reality, but they still have a long, long way to go.  It is going to take another 30 percent drop or so just for them to get to levels that are considered to be “normal” or “average” by historical standards.

And the markets are so fragile at this point that any sort of a major “trigger event” could cause a sudden market implosion unlike anything that we have ever seen before.

So let us hope for the best, but let us also heed the advice of RBS and get prepared for a “cataclysmic” year.

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