CRASH2: Deutsche Bank….leading candidate to set off Correction 3

One of the things nobody mentioned at Davos last week was that as of now, the number of UK plc companies issuing profit warnings is at its highest level since 2008. It wasn’t mentioned because that would fly in the face of an apologist narrative telling us how “the markets have gone nuts, but the world’s economies are in good shape”.

My own view remains that Correction2 is now more or less over, but there are still a massive range of goolies out there of enough weight to set off numbers 3, 4 and 5.
Lost in the midst of last week’s reset bounce was one of them: Deutsche Bank.

On €33bn of turnover last year, Deutsche Bank lost €6.7bn. As the world was rallying towards a new paradigm late last week, this got scant attention. Which is, let’s face it, ridiculous.

Deutsche is one of the more strategically important banks in the world, but for nearly two years now it has been of concern to analysts.

We never did get a satisfactory explanation as to why, in April of 2014,  Deutsche Bank had to raise an additional €1.5 Billion of Tier 1 capital in a hurry. Or why, a month later, DB announced the selling of €8 billion euro of stock – at up to a 30% discount. In March 2015, the Bank failed the banking industry’s “stress tests” – and then a month later was hit for a massive $2.1 billion charge as a result of LIBOR criminality.

Lots of senior bods then left in a hurry, following which Standard & Poors downgraded it to BBB+ – a notch lower than Lehman went to immediately prior to its collapse. In October last, the bank fired 15,000; and now we get these awful results.

My hunch has always been that DB needed all the cost reductions and new capital to make itself ‘immune to’ first, bad debt exposure in ClubMed, and second, bad-bet derivatives.
A default in Greece would’ve been enough on its own to topple the bank. Now that country is effectively a vassal of the Eurogroup, such a risk has receded. But a similar outcome in Spain would blow Deutsche off the map.
I’ve always maintained that perseverance with the threat to default would have delivered Athens from Evil, but it was not to be.
Anyway, the banks are fine now and everything’s different….except for Deutsche. And RBS. Oh, and Santander, Monte del Peische, and  the one in Paris that dare not speak its name. And whatever Bryan Moynihan says (didn’t he look nervous at Davos last week?) Bank of America.

But the DB numbers deserve rather closer attention than those busy drawing attention to attention-getting distractions would like….if only because the bank is sitting on the nastiest derivative mountain on the planet.

It is in perpetual need of ‘cover-money’….as the new Annual Report suggests.
For example, the bank’s 2015 loss represents a negative margin of almost exactly 20%: so for every €5 of business turnover the bank did, they blew €1 of profit. I like to keep things simple, and that is simply appalling. It’s appalling for the following two reasons.
First, under the fractional reserve accounting system, the vast majority of loans granted carry an aggregate margin (usury plus digital funny money) of around 85%. To lose money in that context involves a long and uproarious further education at the University of Dork, having convinced the selection committee after High School that you already have the inbuilt requirements for acceptance at this prestigious college – viz, searing intelligence coupled with a moronic sense of judgement.

Second, whatever your accountancy reporting scam of choice is, even a mediocre year can be made to look good if, for example, mysterious sums appear under headings like ‘incremental earnings’, which last year were in the ‘dormant account set-asides’ column.
In short, to have an appalling year as a multinational bank, you must have had the sort of annus horribilis awarded to Gordon Brown in 2010. And, quite possibly, the same personality challenges he tried so valiantly to overcome through cognitive abusive phone-chucking therapy.
Those with an auditor’s brain should feel free to crawl all over Deutsche’s annual report as and when; suffice to record here that – using the Sherlock Holmes principle of probability elimination – there must be some serious structural problems in the bank. Just putting a little flesh on the the architectural-engineer analogy, it’s hard to avoid the conclusion that DB’s outlook is akin to that of a jerry-built Victorian London terrace sitting on the San Andreas Fault, having employed the original GE engineers at Fukushima to deliver the world’s first meltdown-driven geothermal heating system in order to shore up the foundations.

I’ve been following Deutsche’s wriggle-political-drivel-stress-test-dubious-practices saga for nearly six years. In the press release accompanying the latest results, Deutsche laid out the ‘reasons’ for its disastrous performance as ‘severance and restructuring charges….writedowns, litigation charges and a very difficult trading climate…’.

That blamestorming session evokes neither sympathy nor confidence: ‘severance and restructuring’ means having to fire a lot of people (not a sign of powering forward) ‘writedowns’ is a euphemism for bad debts, ‘litigation charges’ = the costs of cheating people, and ‘ very difficult trading climate’ cannot begin to explain how three US banking firms last week published results suggesting the climate was near-perfect rather than very difficult.

Here is a mind-concentrating fact: following these results, the stock market valuation of Deutsche means it is now smaller than Danske Bank. Even if you don’t stop in your tracks on reading that, aficinados of the sector will.

Now, there is an argument that says if you keep making a loose volcano smaller and smaller, in the end you render it harmless. But (a) nobody has ever managed to downsize Vesuvius and (b) failing banks don’t work like that.

Banks with huge writedowns in a conservative lending era are banks whose borrower targeting systems are overwhelmed by f**kwitted lending-level targets based on bonusing by ‘results’.
Banks with huge losses in one less than apocalyptic fiscal year are banks whose un-netted risks are being slowly introduced into the p&l in the hope that Everest will one day become Ben Nevis.

Deutsche Bank has long been fingered as the planet’s biggest single institutional exposure to bad derivative contract bets. It continues  to try and make that exposure less globally explosive: but the reduction process is based on things staying stable until around 2028.
That isn’t going to happen.

Did you miss: Why Britain will flunk the best chance to destroy EU fascism

34 thoughts on “CRASH2: Deutsche Bank….leading candidate to set off Correction 3

  1. Deutsche Bank has long been fingered as the planet’s biggest single institutional exposure to bad derivative contract bets.

    Well the Media would point to Germany, wouldn’t they? But there is one unspoken element here, and that is the nature of Deutsche Bank itself. This is a private institution like any other, and like any other private institution that has any muscle, it likes telling the lower orders how to behave. There’s a real problem with this attitude in Germany, and it’s called the law; now institutions that are large enough, like the European Union can tell Germany what to do, and the German law lords will do it, irrespective of any local difficulties. Like the Grundgesetz.

    Hence Deutsche Bank set up wholly owned subsidiaries in Britain and Ireland. Places where the banks could tell governments what they wanted, and so be able to evade taxes, and play the stockmarkets with derivatives. It is here that the massive stacks of bad derivatives lie; but there’s a more subtle problem too.

    If the British arm of Deutsche goes bad, have no worries, deutsche Deutsche Bank will say “Now, Britain, can you look after this bad little boy for us? After all, it’s been pumping up your GDP figures for a generation now. Isn’t it fair that you pay a little towards that… or we’ll just let it go pop, okay?”


  2. 3 major banks are in trouble, and these 3 banks are fighting every single night and day to fight off insolvency and failure. CitiGroup in New York, Barclays in London, and Deutsche Bank in Germany- every single night are in trouble.

    The important thing to keep in mind about Deutsche Bank is that it won’t go down alone if it goes down at all. If it fails, it will take along with it 3,4,5,6 or 10, or 15 other banks! It will be 1 or 2 quickly, then a 3rd and 4th a few weeks later, another, then before you know it, all of Italy and their major banks would be kaput.
    The big immediate threat for Deutsche Bank though has to do with their problems in hiding debt for the Sovereign nations applying for the Eurozone. For example, Greece and Italy couldn’t have their debt ratios over certain levels, so what Deutsche Bank did was they turned nice big chunks of Sovereign debt into currency swaps.
    For an example of how this works: Suppose you have a $250,000 bad business loan that is stinking up your credit report. So you call up your favorite Deutsche banker (or Goldman or Morgan- pick your criminal enterprise that is your personal favorite) and you tell him, look I have a $250,000 debt here and I want to make it go away. They say OK, we can do something clever here. We can pay off your debt so your credit report looks good, and we can establish this $250,000 Euro swap, and we’ll keep it off the booksSo you have this $250,000 bad loan stinking up your books, it goes away, and is replaced by something hidden- a euro currency swap! That’s precisely what was done on a larger macro scale by Greece and Italy- and Deutsche Bank is involved with several of these, and the total that is becoming disclosed is $400 Billion. Apply your typical ratios and you can conclude that they are $10, $15, $20 billion short for capital requirements. The big banks are so criminal that they have converted fraud and criminal activity into a small cost of doing business.
    In conclusion, Deutsche Bank owns $25 trillion in OTC swaps with the Central banks and other major banks, so expect a daisy chain of derivative failures for the $1.6 quadrillion derivative market if it were to fail!
    Deutsche Bank cannot break down by itself. It would result in the complete breakdown of the European Monetary Union.
    This is GERMANY through and through.


  3. Was the “rescue” double inverted commas,of Greece always about derivatives made by American and German banks. Cui Bono.


  4. Jamboree “so what Deutsche Bank did was they turned nice big chunks of Sovereign debt into currency swaps” – this may be the current version of history, but it was Goldman Sachs who organized this, and pocketed most of the fees.

    Make no mistake: the European Union (and its toxic offspring, the Euro) is an American ideal; it is why London continues to allow such things as OTC derivatives (and derivatives that don’t see a counter at all, in the manner of Wall Street).

    Such things are illegal in Germany – and is enforced through tedious accounting legislation. That IS Germany, through and thorugh; it is not what Anglo-Saxons see in the mirror… those who truly wish to abuse Germany for their own ends know the Germans very, very well. Otherwise one is going to make serious errors of judgement.


  5. As one who straddles the fault line of the UK and Germany – a bilingual family man – I can’t help wonder at the sudden care and worry outsiders have of German national welfare. The latest Zero Hedge stuff about refugees crapping in the pool cracked me up. Most likely what is unsaid is that any Arabs “over here” are possibly actually cleaner in their daily habits than many Westerners! I regularly saw Arabs cleaning themselves five times a day before prayers.

    Germany has been through so much in its history. Its people are not idiots. They have an extremely pragmatic attitude to many things, and accept far more crap than we Anglo Saxons might do. The very things that irritate the Anglo in Germany may well end up the things that help it through the present crisis. The small C conservatism in daily life – I speak for Bayern here – “Same procedure as last year” is what has kept this country running, year after year. This in normal circumstances drive us Anglos nuts, yet on the other hand it is their saving grace.

    Small C conservatism is what Britain and the US needs – conservation of what is already there before globalist demons destroy everything. That is counterintuitive to many on the left and right wings.


  6. “Make no mistake: the European Union (and its toxic offspring, the Euro) is an American ideal;…”

    Have to ask why it ended up that way, here’s a view I subscribe to:

    “Curiously, Germany’s weight in the overall European economy was lower in 2008 than it was before unification, reflecting Germany’s lacklustre economic growth during much of the past quarter century, as well as the impressive catching-up by a number of countries – including Britain, Spain, Portugal, Ireland and Greece – that were well behind Germany in the 1970s and 1980s. Despite these trends, evidence has grown that Germany has ended up with a controlling presence at the high table of European politics and economics.
    During the long campaign towards the Euro, as a result of the sheer persistence and occasional brutality of German economic officialdom, led by the Bundesbank, other countries have ended up accepting a German-style monetary system for EMU. The D-Mark’s influence lives on beyond its demise – producing impatience and frustration in some other countries, above all France.
    During the crucial bargaining phase in 1989–93, a period that includes the fall of the Berlin Wall as well as a massive, drawn-out European currency crisis, Germany succeeded in further toughening its conditions for monetary union.
    The historical record, as set out by this book, demonstrates that Germany did not give up the D-Mark as part of a bargain for German unification, which would have happened anyway whether or not it was accompanied by a political process that included EMU. German unity lent extra impetus to the decades-long quest for a single currency, but led to no significant German concessions on the make-up of the new monetary order.”

    But the Euro & the structure of the Euro Zone is almost completely a German contribution. Try this… maybe Angie has been working to keep her job, but only for the people who keep her their? ShrewBoil, goes depper I feel…

    The German approach is leaden & authoritarian, It has all been self serving, If your calling that “Pragmatic” you are definatly “on side”… I don’t blame the people but the GmB’s are guilty of conspiring in GBH… There is a lot of self delusion in the current Teutonic perspective. That worries me a lot.


  7. “You see, the problem is, we just don’t understand economics…..” Totally agree kfc1404.

    Worse than that, The free market is merely a set of “Man Made” constructs that stem from the times when we shackled ourself to an agrarian existence.

    It’s a set of “Rules” of our own making, & it relies on consent, & most of all confidence. It worked wile there was room for expansionism. That is, room for growth. Now this system that started from little more than a place to exchange excess produce & wares, & subsequently gave rise to the concepts of both “Money” & “Banks”. It is complex now simply because some have contrived to make it that way for personnel advantage. Consent may have become, over time, uninformed dependence, but make no mistake that like any joint venture the central pillar is confidence & not just from inside!

    You ask is it broken? When now all the wealth goes to the top, & as those at the bottom will have less & finally nothing, & therefore “Nothing to loose”. Then it really becomes chaotic!

    It sits on what we know to be a finite resource, One planet that we call Earth. Some may convince themselves of it’s efficacy because it benefits them, but I have to profess that more & more people are seeing it for what it is, & that’s why the confidence is ebbing, you can see it as contagion from outside, if you like. I call it reality.

    It’s just yet another of our self constructed belief systems.

    Not a soap box I wish to revisit, so I wont again…


  8. Mark no he could not,not without breaking the law,however changing the subject & of topic i belief the BNP are no longer registered has a political party in Britain.
    It seems it has gone bankrupt! the irony the economics of milk & honey (flat earth economics to you & me) as bankrupted them! (it takes some doing to be both morally & financially bankrupt,its called stupid stacking the deck against yourself)
    What could be derived (or derivative d) from that!


  9. Ghost, what a lovely comment! What I will say is that it’ll be the London branch of the party that got the British National Party into trouble; it’s the lack of regulation that allows such goings on. A government that is morally and financially bankrupt will do a very great deal to retain the illusion of its propriety and good standing…


  10. You are correct “the ghost”, old Nick is out of the game, I enjoyed the irony too. Unfortunately other edifices of far right authoritarianism will arise to allege the championing of the myopic, “Us & Them” rhetoric, for those too simple or brutal to desire thought in any other way… Watch-out for anything new, like Pegida & it’s PR founder, below the packaging it will be nothing new.


  11. i didn’t know auditors had brains JW. i thought it essential for them to have no brains. they seem to just sign off anything in return for a good payment.


  12. John ! Was it not Gorgon Broon ..Who came up with Kwontotitieasing. Touch of your old bollocks..a kind of verbal
    KY jelly…for the use of swindlers?


  13. I don’t believe that Deutsche, or Barclay’s, JPMorgan, Citi, Goldman, as a small example, are private entities when clearly controlled and deregulated by the government to perform dirty deeds. Each of these operate without regard to law, and appear to be directed by the government where they operate, even if not in their home country. The Fed gave money to US and foreign banks operating in the US as part of the bailouts alternately titled 1, 2 and 3 stooges.
    They used the money to purchase the auditors, the ratings agencies, and finally, the governments.
    The cycle is complete, and it is only their raw printing of moneypaper that keeps from unraveling publicly, even when they have detonated and are trying to hide the destruction hoping that it will become SEP. (Doug Adams, “someone else’s problem”)


  14. Brain whilst we could argue over ownership of central banks if owned by the government, why is there a law (covenent)stopping the publication of the ownership of those banks


  15. Pingback: CRASH2: Deutsche Bank….leading candidate to set off Correction 3 | Lolathecur's Blog Below are two very important entries from the "Jewish Encyclopedia". Read them VERY CLOSELY.

  16. In the end you got to justify your worth and this includes stocks and shares…

    What worth Cameron, Osborne, etc ?? ===0


  17. Pingback: CRASH2: Deutsche Bank….leading candidate to set off Correction 3 | Heinrichplatz TV

  18. I think there might be some dots to be connected here.

    In an interview also published on ZeroHedge ( Soros chided Merkel for her mistaken policy on European (including German) banks in 2008. And he also welcomes Merkels recent shift in leadership style in the direction of going against the will of the electorate in the migrant crisis. Having read John’s analysis of DB, I think it is not farfetched to say that the fate of vulnerable DB may be the string Soros & Co are using to dictate the moves of the German Chancellor.

    (Especially since importing young workers to an aging society is not necessary in the age of globalisation and automation – it makes no sense whatsoever, so Germany in reality does not need the migrants as a workforce. It is definitely not a home-made German project. Inviting the migrants is so nonsensical socially, economically and politically, that the reason she is doing this may lie elsewhere. I do not know where it lies, but the DB situation does look like an obvious string in this puppet show…)


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