Is This The End of Deutsch Bank?
The troubles at Deutsch began long before the recent Department of Justice leak that indicated that they may be on the hook to the tune of about $14 billion for their role in the sub-prime mortgage scandal that rocked the world in 2008.
Since that time the bank has been hit and hit hard by fines for other infractions and pending litigation and potential fines could well end up causing the end of the storied institution.
In 2007 before the mortgage crisis began the stock for D.B was trading at a record high of $152 per share, which has since bottomed out at an amount less than 10% of its peak value in those boom years and is currently trading at only $13.33 per share.
From the record losses in 2015 of close to $7 billion dollars to the Berengberg Bank warning that D.B is levered to the tune of almost 40x its capitol, to the Federal Reserve notice that D.B has once again failed to pass the mandatory “stress test” that all big financial institutes must pass because of “poor risk management and financial planning” the bad news just keeps piling on.
The fear is that if D.B heads down the same path trod by Lehman Brothers in the U.S and declares bankruptcy, the ramifications for the world economy will exceed the shock caused by that event by a very large order of magnitude.
While the German Government has publicly stated that it will under no circumstances bail out the bank the fact that D.B hold approximately $42 Trillion, yes, Trillion with a “T” in derivative positions that is quite unlikely given the potential fall -out that would be felt by banks and national economies around the globe if they are allowed to fail as Lehman Brothers was.
It certainly remains to be seen what course of action the IMF and German Central banks will take with regard to D.B and whether or not the U.S Government will in fact demand the sort of restitution that they are talking about currently.
The fines, if true, would be substantially larger than the banks competitors faced for similar transgressions.
Adding to the woes is a recent Bloomberg report that suggests a certain number of Hedge Funds have recently pulled out collateral from the troubled institution in the fears that this may well be the beginning of the end.
While it may not prove to be the beginning of the end, it is most certainly the end of the beginning, and the firm will be hard pressed to right itself.
While it seems that this is another country’s woes every country has to be concerned and tuned into what is happening around the world because it often can have a ripple effect.