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…
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