Just read a few broker reports, it looks like their financial position is fine (i mean compared to what its priced at, can't say its brilliant), but as you say the investors are not really buying it. I mean there's a slim chance of deutsche going under, so why would risk leaving your money there right?

There's already been a few discussions on this, but i think the question is not whether DB will go under but whether they will need Germany to bail them out or not. The whole reason they ve been tanking is because of litigations and as much as the lawyers would love it, there's no way the DoJ would risk starting a new financial crisis by destabilising Europe's biggest bank

 

Because 1) they cant go into an election saying they'd bailout an investment bank for their wrongdoings in the subprime crisis 2) they'd remove any negotiating power against the DoJ. Whereas here DB can say "germany wont back us, your fine will cause us to collapse and mark the start of the next crisis, is that what you want?" 3) they're hoping for the DoJ to lower their fine to a level db can pay by itself and wont be in the awkward position to bail out their bank when they told the greeks to f off

 
Best Response

It's interesting to me that the instant response from bankers has been a steadfast belief that DB will be able to skate away from the fine, even when US banks weren't able to do so. The DoJ didn't care the Wegelin bank, was (now gone) the oldest bank in Switzerland, wasn't able to pay their fine, and the ramifications are why you can't open a swiss bank account today.

If you're going to make up a political motivation to just "say they aren't" going to bail them out, what about the alternative? What if Merkel wants them to go under, sure they'll "step in" to avoid financial contagion like Lehman, but in return that also hands them all the power they need to completely dismantle DB as they see fit and bring down the long term "evil" of a "too big to fail" bank. Probably the more likely scenario since she stands to not only gain political clout, but also safeguard their economy for years to come. Not to mention the DoJ gets a huge win with populist appeal.

Whereas your theory leaves Merkel backtracking her promise thus hurting her political career, costing the taxpayers billions, and continuing to perpetuate a system that can severely damage or hold the economy hostage. It also makes the DoJ look soft if they allow another bank to settle for less. So basically, the parties holding all the cards have a deeply vested interest in DB going under, and stand to lose by propping them up. I'm not sure I'd take the bet in that fiction.

 

They have a lot of shitty contracts on oil (long when oil was 120) and regulations on oil productions is Merkel's work to safe DB. Then important day is 15th December bcs Italian court sued DB and Nomury for manipulating markets, making false account.. But In my opinion they fix it and in the worst case Draghi reddem them.

 

I think the risk of contagion in Europe is real, especially given DBs role in the derivatives market. DB failing could leave a number of banks -- both Euro-based and US-based -- in a bit of a pickle.

Which is why I think Germany, or a broader European bailout, is somewhat likely. Timing will be an issue given that the US elections are before the elections in Germany. Bailing out DB will kill Merkel's shot at reelection, but letting DB fail will almost certainly kick off another financial crisis in Europe (or are we at a point where Europe is just perpetually in crisis now?)

Director of Finance and Corporate Development: 2020 - Present Manager of FP&A and Corporate Development: 2019 - 2020 Corporate Finance, Strategy and Development: 2011 - 2019 "An investment in knowledge pays the best interest." - Benjamin Franklin
 
BirdoInBoston:

I think the risk of contagion in Europe is real, especially given DBs role in the derivatives market. DB failing could leave a number of banks -- both Euro-based and US-based -- in a bit of a pickle.

Which is why I think Germany, or a broader European bailout, is somewhat likely. Timing will be an issue given that the US elections are before the elections in Germany. Bailing out DB will kill Merkel's shot at reelection, but letting DB fail will almost certainly kick off another financial crisis in Europe (or are we at a point where Europe is just perpetually in crisis now?)

Is a crisis not inevitable? Either DB fails and, as you mentioned, their overall derivative exposure causes meltdowns elsewhere. Or, the ECB prints even more money to bail them out, pushing interest rates further into the negatives, bringing on inflation, and the alternative meltdown is staged.

 

"The soaring cost of default protection on Deutsche Bank may not be all it seems... traders believe an accompanying surge in Deutsche Bank's credit default swap (CDS) spread is at least partly a result of Germany's new bail-in rules.

A legal change to the debt waterfall of German banks on January 1 means Deutsche Bank's senior unsecured debt is now subordinated to other operational liabilities, including derivatives, making it less likely the bonds would be repaid in full in a default. In other words, its recovery rate would be lower. Given the most common Deutsche Bank CDSs reference this debt, it means selling protection is now riskier."

 

They made good money in fixed incomes but cant adjust to the current markets plus litigation issues. If that really is the case then its not a hot combination.

“The only thing I know is that I know nothing, and i am no quite sure that i know that.” Socrates
 

Deutsche Bank is a dirty, poor-performing bank whose only true asset is being the largest German bank (and the only "big" one as Commerzbank is considerably smaller). It is sort of the bank you can't get rid off but you must deal with, so they are still around. This bank is toxic to the EU banking industry and will sooner or later pay hard for it. Definitely not a desirable place to work at unless that's your last option.

"Never believe in anything until it has been officially denied"
 

Had a meeting with one of their analysts in their office to which I commented on how they had such a great view from their office. He replies with something to the effect of "the view is nice but I don't get paid...at least I have a river view though."

 

Ehh idk man. Too much political risk - the ECB is running the show and the Germans would backstop DB if push came to shove.

Since you are using play money, short TSLA. That valuation of that company defies logic - it is a cash burning machine and has yuuugee governance issues.

Although with real money, I would never short that stock, as its one of the "market can remain irrational longer than you can remain solvent" sort of stories.

"Some things are believed because they are demonstrably true. But many other things are believed simply because they have been asserted repeatedly—and repetition has been accepted as a substitute for evidence." - Thomas Sowell
 

Reason I ask about DB is that their stock took a big hit today. Agree with the tesla comment. Was shorting it with 10% of my portfolio but it kept going up and now it is 203 when it was 196 when I had planned on shorting it, I got out when it was 197 or so. Should I put a short on it later before the market closes today?

 

Ahhh I have a longer time horizon, as in I think TSLA is worth about 70 bucks, max. Don't know if/when there will be a catalyst though.

I remember doing those simulations in school though, you should fuck around with the options on there. Gotta curb stomp the rest of the class, or at least try to.

"Some things are believed because they are demonstrably true. But many other things are believed simply because they have been asserted repeatedly—and repetition has been accepted as a substitute for evidence." - Thomas Sowell
 

if it's a low priced stock, it's at risk of being de-listed, but that shouldn't happen to DB. for whatever it's worth, fiat Chrysler is a low priced stock, as is Petrobras, Chesapeake, Alcoa, and more.

what's likely if they don't get bailed out is they do what Citi did a few years back (reverse split), which makes their price higher and should put a damper on volume.

 

Hilarious. I'm sure the German people will love that, especially given their current socio-political sentiment......

Then out spake brave Horatius, The Captain of the Gate: "To every man upon this earth, death cometh soon or late. And how can man die better than facing fearful odds, For the ashes of his fathers, and the temples of his Gods."
 

Whilst I'm not of the opinion that they will require a bailout, the equity is in a bad position. They are extremely under-capitalised and will need to raise equity, but will have a very hard time doing so at a decent price.

I feel the comparisons people are making to the Lehman brothers is partially out of context. The core risk here is fines and legal costs, coupled with a weak capital position. I would be skeptical that any regulator would risk pushing DB over, as the systemic risk of that action outweighs the punitive benefit. They won't escape punishment, but I doubt it will be in a lump sum fine of the magnitude to kill db.

 

They cant go into an election publicly stating they'll bailout a bank because they can't pay the fines imposed on them for their wrongdoings in the GFC, that's not how politics work

I guess they're hoping Deutsche is able to sort itself out, with the final fine landing in the 5bn mark (it provisioned for 3.5bn)+ with a little help from the capital markets once again. But Germany, and the EU, simply cannot afford to let DB go down. Will be interesting to see how it all plays out

 

I don't think we will see a bailout. By the time we see the final amount (likely to be well below $14 bn), DB would have already recovered a bit IMO. Also, I don't think you have to pay it in one lump sum. Look at BNP with its $9 bn penalty. It just wiped down a year's profit. It's like poker, the DOJ will find just the right amount to suck up the most money it can while avoiding too painful political consequences.

 
bakura2121:

I don't think we will see a bailout. By the time we see the final amount (likely to be well below $14 bn), DB would have already recovered a bit IMO. Also, I don't think you have to pay it in one lump sum. Look at BNP with its $9 bn penalty. It just wiped down a year's profit. It's like poker, the DOJ will find just the right amount to suck up the most money it can while avoiding too painful political consequences.

I'm sorry how is that like poker?

 

Another thing I'd add is, if Merkel said they'll bailout DB, Deutsche would have lost its negotiation power with the DoJ in the sense that the ball is in DoJ's camp whether they want to start the next crisis by destabilising Europe's largest bank or not. If the German gov said otherwise, it's like free german money for the US, so the DoJ may as well push for the 14bn to be paid in full

 

Why is the picture for this thread Wells Fargo? Haha.

I am no expert on German politics, but I do follow European politics in general fairly closely. While I do think that Deutsche Bank will receive a bailout (Germany's finance minister was the one pushing for austerity in Greece and has been a friend of banks for a while), it will be very tough for Angela Merkel's CDU to come back from this. They have already suffered setbacks in recent regional elections and will probably suffer more. With the nationalist and populist AfD rising in power, I do not see how Merkel can justify a bailout.

 

I also think there will be a bailout once it becomes really necessary. because on one side you have Merkel's political popularity and on the other side you have the doom of Euro. I'm sure they'll make the right decision.

At the same time this bailout would create a lot of controversy. Two years ago Germany let Greek bank system hit the wall, even this year with troubles in Italy, Germany suggests that depositors take some of the losses. Sure, DB can't be compared to Italian or Greek banks, while it raises a question whether Germans play by their own rules again.

 

Germany would bail out DB if it is needed!

Politicians (and central banks) speak to the political winds of the day. Those can change, follows changes in political winds are changes in their tone.

She will discourage DB from seeking help and think bail out is easy to get, but if DB is at that tipping point of failing, German economy and markets will feel the pain. They won't want to be responsible for the aftermath of their largest bank failing and that permeating throughout the German markets and economy.

Additionally the latest round of concern comes from the large fine out of the US. If she was talking back channels to get that pushed way down (as it should be to be in par with fines given to other banks), it wouldn't necessarily be public. She can do other things to help DB without publicly supporting them.

 

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