Daily Management Review

Deutsche Bank is increasingly resembling Lehman Brothers


09/30/2016


Eight years ago, the markets were in panic as Lehman Brothers collapsed. Now, there is a real threat of a repeat, only this time with participation of the largest German bank - Deutsche Bank.



Lucas Kaufmann
Lucas Kaufmann
In any case, this is what market participants fear. Shares of the financial giant has once again updated historical lows, losing almost 7% on the session in New York. By the way, the largest bank in Europe is now cheaper than Twitter.

The occasion was news published by Bloomberg. 10 hedge funds have decided to refuse services of the largest German bank on clearing transactions in derivatives. Well, if professional participants of the market are withdrawing the money, it’s time to think about feasibility of keeping money in there. 

The feeling of anxiety is not leaving the market. Shares of other banks, including in the US, got cheaper on the background of events around the Deutsche Bank. Everything resembles 2008. It is clear that the problem of such a giant will hook the entire financial system.

In fact, there is no reason for concern, as the public authorities and representatives of the bank continue to reassure. Almost every day, we are hearing statements that the fears are exaggerated and the bank’s condition is more than stable. 

Meanwhile, other experts remind us that Deutsche Bank is a ticking time bomb with explosive power of 42 trillion euros. This is the sum of the bank's transactions in derivatives. This, incidentally, is ten times more than GDP of Germany.

In addition, the US Justice Department demands that the bank pays a fine of $ 14 billion, and it is an impossible task.

If the market participants continue to withdraw money from the Deutsche Bank, the problem will become much more acute. Besides, the European authorities are assuring that everything is fine, but why then the basic rate swaps, demonstrate need of European banks in dollars, indicate a sharp liquidity shortage?

Bloomberg earlier reported that the 10 largest hedge funds (in particular, Millennium Partners, Rokos Capital Management, Capula Investment Management and a number of others.) transferred part of the funds, providing coverage on derivative contracts, from Deutsche Bank to other banks. This decision was explained by potential problems with liquidity in the bank.

The Wall Street Journal reported that a number of the bank’s major clients (Magnetar Capital LLC, Millennium Management LLC and AQR Capital Management), in addition to reduction in trade transactions with Deutsche Bank, also decided to withdraw other funds from the institution.

Several experts said that the largest bank in Germany is now standing in front of losing confidence of investors. Chris Wheeler, Financial Analyst at Atlantic Equities fund, in particular, noted:

"The question now is about confidence in future stability of the bank. Everyone is saying out loud: yes, of course, everything will be fine with Deutsche Bank. However, there is a certain probability that it is not, so why should I expose my money to unnecessary risk?" 

source: zerohedge.com, bloomberg.com, wsj.com






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