Showing posts with label Deutsche Bank. Show all posts
Showing posts with label Deutsche Bank. Show all posts

Saturday, 14 March 2020

The Real Crisis Starts Now in Europe

I think it’s safe to say the new crisis just killed the Schengen Treaty. That ridiculous document which guaranteed freedom of movement across the European Union finally hit something it couldn’t bully, COVID-19.
Regardless of whether you believe the pandemic is real or not, the reaction to it is real and is having real consequence far beyond the latest print of the Dow Jones Industrial Average.
The lockdown of Italy isn’t a temporary thing. Oh, the suspension of free movement is temporary, but it portends something far bigger.
It’s the beginning of the real political balkanization that’s coming to the European Union over the next few years. Old enmities and prejudices have not been stamped out under the boot heel of oppressive legislation coming from a bunch of disconnected technocrats in Brussels.
They have only been suppressed.
Because when there are existential threats there’s no time or desire to virtue signal about how we’re all one big happy dysfunctional family.
For decades Germany refused to lighten up on its fiscal inflexibility believing, rightly, that it shouldn’t subsidize profligacy in places like Italy, Spain and Greece if it didn’t want to.
At the same time, however, Germany transmitted those rules to the single currency regime of the euro. That was the price they forced on the rest of Europe.
This ensured that eventually they would have to do exactly that, subsidize or bailout debts, as the mispricing of labor and capital efficiency inherent in the any single currency applied over multiple economies drove capital to Germany and out from those countries.
Now Germans face the existential threat of COVID-19 imported into Europe mostly through Wuhan textiles workers in Milan’s leather shops/ Their leaders will force them to accept looser spending rules.
And do you think this will engender an outpouring of love and affection towards Italians?
If you do you might be delusional or an open-borders libertarian… but I repeat myself.
Chancellor Angela Merkel has signaled for months she would spend more to satisfy the rising Greens on Germany’s political left.
Her finance minister, Olaf Scholz, unleashed the full force of Germany’s sovereign wealth fund to offer unlimited support to German businesses facing troubles because of this virus.
This is as good a cover story for the gargantuan holes in the balance sheets of zombie German banks as they were likely ever going to get folks.
ECB President Christine Lagarde was brought in to ram through the political changes needed to loosen Germany’s tie. She knew the only way the EU would survive the growing crisis within its non-functional sovereign debt market was to print money to the high heavens.
Or allow the union to break up. But, there is no Door #2 in Europe. All doors lead to Brussels.
Germany stood in the way of that while at the same time Merkel ruthlessly enforced Schengen. She weakened the political center in Germany and inflamed memories of a Germany which rampaged across Europe militarily in the 20th century through enforced austerity hollowing out less-efficient euro-zone economies.
So in the midst of this mess comes COVID-19 and the uncoordinated and inept response to it from the political center of Europe to date. Only now are they coming to the conclusion they need to restrict travel, after sitting on their hands for a few weeks while Italians died by the hundreds.
And do you think that’s engendering waves of love and affection among Italians towards Germans?
If you do then you don’t know Italians… at all.
And this is your signal that this is the beginning of the real crisis. Because while COVID-19 may have been the catalyst for the breakdown of capital markets, capital markets were simply waiting for that spark to occur.
Any other type of spark, a bank failure from a run of bad loans, could have been handled and absorbed. There was no Credit Anstalt the central planners weren’t prepared for.
They’ve been able to keep Deutsche Bank operational for the past few years, for pity’s sake, they could have handled any other single bank failure.
But with COVID-19 being the ultimate form of exogenous shock to the global economy there is no containing the financial contagion. And that’s why we saw a strong unwind of U.S. equities and a sharp rise in both the Japanese yen and the euro when this thing began.
Part of what had been pushing U.S. equities higher was the capital flow from Europe and Japan into the U.S. That reversed for short time as the eurodollar markets seized up and the demand for cash locally rose sharply.
It’s no different than what is happening here.
I went to my bank yesterday to grab some cash and finish our self-quarantine prep (we’d bought extra toilet paper weeks ago). The teller told me she’d moved out a lot more cash than normal and it wasn’t even the end of lunch hour.
Then I told her the bank run on corporate credit began earlier in the week as companies like Boeing maxed their credit revolvers to front run the bank pulling it.
That got her attention.
The same thing on a larger scale was happening in Europe until Lagarde told the world that she wasn’t done blackmailing Germany to loosening its stance on fiscal rules at her presser on Thursday.
And the rally in the euro, which was already sick, died.
Annnnd…. it’s gone!
What we saw to end this week was an epic reversal of that capital outflow as the USDX and U.S. equities rallied while the euro crashed back to $1.11. And now that it’s started I don’t expect it to stop.
The Fed fired major blanks at the dollar-funding crisis in the credit markets this week. What is the ECB going to do to stop rates from rising in Europe as money flees their incompetence?
Fairy dust springs to mind, honestly. But, more likely there will be a very quick move to close the banks and cancel the use of cash while new rules are adopted and Lagarde turns to the IMF to bailout the ECB which can very easily go bankrupt here.
The weakest banking system in Europe serves a country on lockdown over this virus.
So, it doesn’t matter now that Germany has acquiesced, pledging its own savings and lifting fiscal restraints of euro-zone members. All the printing will does is feed the vortex of unpayable debt that is far bigger than their prodigious piggy bank.
The next stage of the crisis is here with the focus finally turning to Europe. The U.S., for all of its faults, is one nation with a unified debt market and an executive who can and has exercise powers necessary to keep the wheels from completely falling off the U.S. economy.
Will Trump spend money he doesn’t actually have? Yes. So what?
That money will go into a logistical pipeline that far outstrips Europe’s to combat a disease over a smaller population spread across larger distances. That limits the damage to the U.S. It ensures political stability that the EU cannot hope to compete with for the trust of spooked capital.
Add the global economy grinding to a halt. We’ll see the crisis emerge in Europe to feed a widening gyre of debt servicing that will look like a global bank run on dollar liquidity.
It will force fundamental reform of the euro and the ECB. They are necessary for the EU to survive this crisis in anything close to its current form.
I’m not laying odds that will work. Instead I expect Schengen’s suspension to hold and more countries go the way of the Brits by exiting the EU itself.
While this crisis is tailor-made to shove the federalization of Europe down the throats of what’s left of the German middle class, I don’t think it succeeds.
Until Germany is willing to bail out Italian banks, there is no solution to this.
And while I think Merkel is willing to fall on her sword to get this done, It may still not work.
How convenient it is that Merkel’s CDU just cancelled their April 22nd leadership vote because of this crisis. This forestalls any possibility of Merkel losing control of her party until after Germany begins its EU Commission Presidency.
Whatever she has planned she has to do soon. Her political capital is just about spent.
There will be no change of leadership during a crisis like this. She’s almost done completing the sell out of Germany to the EU begun by Helmut Kohl.
Just in time for the whole experiment to come crashing down.
Join my Patreon if think the EU is toast


Monday, 21 November 2016

Europe is SCREWED: Shock warning from trader who predicted 2008 financial crisis

EUROPE could be blown apart by a toxic cocktail of risks brewing within the bloc's financial system, according to the Wall Street trader who correctly predicted the 2008 financial crisis.


Steve Eisman, who inspired Hollywood film The Big Short, has warned Italy's crippled lenders and large amounts of sovereign debt held by European banks are among the reasons the continent is facing total meltdown. 

The most immediate threat comes from the staggering £270billion worth of bad loans held by Italian banks, according to the legendary investor, who made £81million ($1bn) by betting against banks in the run up to the financial crash in 2008. 

While the guru said he wasn’t worried about Britain’s banks, he laid out a grim future for Europe.
euroGETTY
Europe is on the brink, according to Steve Eisman
Steve CarellGETTY
Steve Carell played Steve Eisman in the film the Big Short
He said: “Europe is screwed. You guys are still screwed.”

The guru said Italy's lenders are trapped by the so-called non-performing loans. 

He added: "In the Italian system, the banks say they are worth 45-50 cents in the dollar. 

"But the bid price is 20 cents. If they were to mark them down, they would be insolvent.”

Mr Eisman also sounded the alarm over the amount of government debt - sovereign bonds - held by financial firms on the continent. 

He said: “What is very negative is that in every country in Europe, the largest owner of that country’s sovereign bonds are that country’s banks."

At the same time, the investor expressed concern over Deutsche Bank, which has seen more than half of its value wiped this year over fears of a looming £11.3billion ($14bn) fine from US regulators.
Compared to US regulators, European watchdogs have not taken a tough stance against banks, according to Mr Eisman.

He said: "The European regulators have been much more lenient than the US regulators.”

However, the investor believes financial firms in Britain are not a cause for concern. 

He said: “I’m not really worried about England’s banks. 

“They are in better shape than most in Europe.”

http://www.express.co.uk/finance/city/734694/Europe-is-SCREWED-big-short-trader-predicted-2008-financial-crisis

Monday, 10 October 2016

GLOBAL FINANCIAL CRISIS: Bank of America issues TERRIFYING worldwide recession warning

THE world economy is set for another devastating financial crisis next year - and markets are unprepared - a top banker has warned.

bank of america
'The US could be heading fore recession'
Based on key indicators that have predicted previous recessions, the US will face a downturn next year, according to Bank of America-Merrill Lynch's head of US equity and quantitative strategy Savita Subramanian.
If the world's largest economy runs into trouble the rest of the globe would be dragged down as well, she said.
Worryingly, central bankers in major developed countries appear to have used almost all of the tools at their disposal in a desperate bid to try to kick-start growth.
And markets could be in for a nasty shock if a recession were to hit as they are not pricing in a downturn.
Ms Subramanian told CNBC: "We are seven years into a full-fledged, all out, central bankers doing everything they can to stimulate demand…. yet sales growth is decelerating.
"We looked at all of these indicators that have been pretty good at forecasting recessions and we extrapolated that if they follow the current trends they're on, we're going to hit a recession sometime in the second half of next year, so a recession in the next 12 months, which I don't think is discounted into the market at these levels."
She added: "There's more risk than reward at this point"
The warning comes as stock markets in Britain and the US reach towards record highs.
Ms Subramanian said: "What scares me is the market has been so fragile."
It came as Royal Bank of Scotland was warned it may have to pay out as much as $27 billion, roughly the market value of the bank, in misconduct fines and lawsuits over the next few years.
That bill represents the upper end of estimates to settle a range of claims related to RBS's alleged misconduct before and during the financial crisis, including mis-selling mortgage backed securities (MBS) in the United States.
Investor concern over RBS's outstanding legal and compliance woes increased after news last month that the DOJ is seeking up to $14 billion from Deutsche Bank for its role in the mis-selling of MBS in the run up to the financial crisis.
"The concern is that it could be another Deutsche Bank-style situation where the fines that come in are higher than the market expects," said Laith Khalaf, an analyst at Hargreaves Lansdown, Britain's largest retail stockbroker.
"Litigation is a real Sword of Damocles hanging over the bank at the moment and until that is out of the way it is very difficult to see a reason to invest in RBS."
An RBS spokeswoman declined to comment on the potential size of the legal bill.
If RBS wins the court cases and the fines are at the lower end of analyst estimates, the total would be around $5.5 billion, most of which it has set aside to cover those damages.
However, analysts say the bank could have to pay the U.S. Department of Justice as much as 9 billion pounds ($11.19 billion) in the next few months. Even the lowest estimate of 2 billion pounds ($2.49 billion) would make it largest fine in the bank's history.
http://www.express.co.uk/finance/city/719556/Bank-of-America-issues-TERRIFYING-worldwide-recession-warning

Eurozone banks are in DEEP trouble: Wall Street top bankers issue warning to EU

EUROPE's biggest banks are vulnerable and pose a huge risk to financial stability, according to some of Wall Street's top bankers.



wall streetGETTY
Goldman Sachs warned over eurozone banks
Financial heavyweights from the US and Switzerland joined forces to sound the alarm over Deutsche Bank and its peers.

Goldman Sachs' president Gary Cohn hit out at eurozone banks for failing to clean-up their balance sheets after the financial crisis.

Speaking at the Institute of International Finance, the chief said the US banking sector was “in the best shape ever,” reported the Financial Times.

And then added: “Other [parts of the world] provided cheap financing to their banks to allow them to earn their way out of the crisis and hoped that asset prices would recover.

“What we are seeing today is that approach isn’t necessarily working.”
At the same conference, Sergio Ermotti, chief executive of UBS, said: "Europe is in a huge overcapacity situation, with a combination of private sector and public sector banks and quasi-public sector banks that have been allowed to compete.”

Nigel Vooght, global head of financial services at PwC, also joined in with the criticism.

He said: “Banks need to wake up and start to react, because they are an integral part of society, but they don’t have a divine right to be here … All the banks are trying to switch from an interest rate-based model to a fee-based model.”

Last week the International Monetary Fund said the European banking sector, particularly Deutsche Bank, was a risk to the world banking system.

http://www.express.co.uk/finance/city/719555/Eurozone-banks-in-deep-trouble-warns-Goldman-Sachs-boss

Deutsche Bank going bankrupt could DESTROY EU and tear down world economy, warns investor

TROUBLED Deutsche Bank will collapse and tear down the world's financial system, if US authorities refuse to relax a £10billion fine, according to financial commentator and investor Jim Rogers.

Deutsche Bank
'Deutsche Bank could collapse the world financial system'

Germany's biggest lender is desperately trying to negotiate down the huge financial penalty imposed on the bank for mis-selling mortgage-backed securities. 

So far the group's boss John Cryan has not been able to secure an agreement for a smaller fine. 

There are only two paths from here, according to Mr Rogers. 

He told Russia Today (RT): "Either Deutsche Bank goes bankrupt, which is going bring down the entire world financial system, or they are going to come up to some kind of compromise at a lower number." 

And if Deutsche Bank does fails, it would mean the end of the European Union (EU), predicts Mr Rogers.

He said: "The EU would disintegrate, because Germany would no longer be able to support it, would not want to support it. 

"A lot of other people would start bailing out; many banks in Europe have problems. 

"And if Deutsche Bank has to fail – that is the end of it. In 1931, when one of the largest banks in Europe failed, it led to the Great Depression and eventually WWII. Be worried.

"Germany has been rightly telling everybody not to bail out their banks, but if they have to suddenly bail out their banks, then other countries will be furious and the politicians will have a field day."

Even without the fine, the lender is in trouble, said Mr Rogers. 

He added: "If you look at its balance sheet you will see it has huge, staggering debts both on balance sheet and off balance sheet, which means their debts that they don’t reveal directly. 

"It probably will survive if it has support, but otherwise we all are going to have huge problem in the next couple of years. 

"I’ve told you before: you should be very worried. The western world, the world is going to have a lot of problems the next couple of years. Be worried."

According to the critic, the the US government is asked for such a big fine is because it's in debt. 

He said: "They are desperate for money. They’ll try to get it anywhere they can. I can’t imagine that Deutsche Bank should be liable for $14 billion, but I’m not involved."

http://www.express.co.uk/finance/city/719564/Deutsche-Bank-bankrupt-could-DESTROY-EU-and-tear-down-world-economy-investor

Tuesday, 4 October 2016

Italy set for SHOWDOWN with Germany over Deutsche Bank’s rescue package

RELATIONS between Germany and Italy are set to hit breaking point, if Berlin's steps in to rescue Deutsche Bank, after blocking Rome from doing the same earlier this year.

renzi merkel
Italy and Germany could fall out over banking bailouts

Angela Merkel's government has been put in a supremely awkward position by the crisis playing out at Germany's biggest lender, which some experts say will not go away without a state bailout. 

And Italian prime minister Matteo Renzi is no doubt paying very close attentions as events unfold. 

The leader has reportedly begged Germany to let him loan cash to Italy's banks, as investors have increasingly lost confidence in the institutions, which are saddled with billions of pounds worth of bad loans. 

In particular, Italy's oldest bank Monte Dei Pasche has looked close to collapse several times this year, and Mr Renzi is still trying to secure a £4.2billion (€5bn) cash injection from investors for the lender.

But it's thought Berlin has so far been unyielding and told Mr Renzi that he must abide by new EU rules, which mean savers and small investors must take a hit before governments are allowed to use taxpayer money for capitalisation.

Such a move would have been akin to political suicide for the Italian prime minister.

Now Germany is faced with its own banking crisis, as investors flee Deutsche Bank amid concerns it can't afford a looming fine from US authorities. 

Berlin also made a huge faux pas when it fanned the flames of the fire with claims that it would not provide state assistance. 

The comments saw the bank's share price fall to new record lows last week and put the lender in an even more fragile position. 

The situation is particularly embarrassing for the German government, which has long lectured other eurozone countries over how to deal with financial crises.

Renzi and Merkel
Renzi and Merkel are at odds over banking rescues

Despite the bravado, experts say there is no way Mrs Merkel can let Deutsche Bank go to the wall, because of its size and exposure, the lender could take down the entire eurozone banking system if it were allowed to fail. 

It's thought Mr Renzi is now hoping that Germany will bailout Deutsche so that he can do the same for Italy's banks, which are still in an extremely vulnerable position. 

As Deutsche's share price plunged last Friday, the Italian leader pointedly told reporters: "I am sure the German authorities will do whatever is necessary to avoid the worsening of the Deutsche Bank crisis. 

"We have always said that the European Union has to do everything in its power to fix the problems of the banking sector and the main worry focuses on the German lenders."

However, experts said Berlin could use technicalities to step in and rescue Deutsche while still blocking Rome from helping Monte Dei Paschi.

Michael Hewson, chief market analyst at CMC Markets UK, said: "It would certainly help Renzi if the German government were forced to bailout Deutsche Bank, as it would then open the way for him to bail out Italy’s lenders, so I think there is a certain amount of hope on the part of Renzi that the German government may well act on that.

"The difference between Deutsche Bank and Monte Dei Paschi is apples and oranges though. Deutsche is a systemically important bank and state aid could be justified on that basis under the treaties in certain circumstances. Monte Dei Paschi is not and therefore would not qualify for state aid."

Such a move by Ms Merkel would be hugely damaging for relations between the two countries and could fuel anti-Europe sentiment in Italy.

Simon Tilford of the Centre for European Reform, a London-based think tank, said: "The big fault line in the eurozone is between Italy and Germany."

http://www.express.co.uk/finance/city/717542/Italy-and-Germany-s-SHOWDOWN-Deutsche-Bank-rescue

Monday, 3 October 2016

EUROZONE THREAT: 'Toxic' Deutsche is huge problem for EU and Merkel, warns ex-minister

DEUTSCHE Bank's potential bailout is "toxic" for Angela Merkel and could ultimately trigger huge shockwaves through the eurozone, the former German economics and technology minister has warned.

Deutsche
Deutsche Bank is 'toxic issue for Angela Merkel'
Ahead of next year's election, the German Chancellor must react to the woes of Deutsch carefully or risk the wrath of her electorate, according to Karl-Theodor Zu Guttenberg, former German politician and founder of New York-based Spitzberg Partners.
It comes after Mrs Merkel ruled out the possibility of the Italian government rescuing its banks.
Mr Guttenberg told CNBC: "It is a quite toxic combination for Angela Merkel, she has to be careful in the direction to move. If she offers a bailout too early, it could backfire from the German public.
"If she doesn't, she could sacrifice a German symbol, so it's an awkward position for her right now.
"If she offers a bailout after her stance towards Italy, it could even undermine European structures again, so it's highly complex, it's not over this story."
Deutsche's share price has plunged to record lows over the past week, as investors fear for the bank's solvency.
And the fall-out has also led to sell-off across European banks, as fear spreads through the sector.
Mr Guttenberg, a former member of Angela Merkel's Christian Democratic Union party (CDU) revealed he also shares a gloomy outlook on Europe's banking system.
He said: "I'm not a big optimist on European banking stocks."
Even though Mrs Merkel's government has denied a rescue plan for Deutsche, Mr Guttenberg said the German leader almost certainly has a contingency plan in place.
He said: "She'd (Merkel) be extremely reckless to not prepare for plan B."
Investors' main concern is a looming fine from US authorities over a mis-selling scandal related to the financial crisis.
The Department of Justice wants Deutsche to pay more than £10billion - almost the entire value of the bank and a charge the lender is unlikely to be able to absorb.
Mr Guttenberg said the bank must negotiate down the fine and come up with a "viable strategy" for the future so that it isn't just "muddling through".
http://www.express.co.uk/finance/city/717125/Toxic-Deutsche-is-huge-problem-for-EU-and-Merkel-warns-ex-minister

MUST READ: Could Deutsche Bank crisis cause the EU to collapse?

The enormity of the crisis surrounding Deutsche Bank is another illustration that Brexit was the right decision. Indeed, if the crisis spirals any further there may not be much of a European Union left for Britain to leave


Jayne Adye
On 3 October 2016 13:45

Deutsche_bank
Crisis what crisis?

The crisis currently engulfing Germany’s largest lender, Deutsche Bank, is one which has taken many people outside the financial community by surprise. We have long held the stereotypical image of German banks -- like the German economy -- as being rock solid.
It had been assumed the largest threat to Europe’s banking system would come from the Italian banks, with their £300 billion worth of bad debts. Yet it is the crash in value of the shares and bonds of Deutsche Bank, resulting in part from the $15 billion (£10.8 billion) fine proposed by the U.S. Department of Justice for the German bank’s mis-selling mortgage-backed securities in 2005-07, which now presents the biggest threat to the Euro and to the EU as a whole.
Deutsche Bank’s woes should not really come as a major surprise. The financial community has long viewed it as a bank with major problems. The International Monetary Fund (IMF) believes it to be the riskiest large bank in the world.
This is reflected in its shares which are down 53 percent this year, a clear sign of the market’s concern over its medium-long term profitability. Back in July the bank itself announced a slump in profits and revenues which were to be a taster of the problems to come.
All of this presents German Chancellor, Angela Merkel, with a serious dilemma: Does she step in to save the bank, in the event its woes continue, or does the German government leave it to its fate?
The options have serious political implications both within Germany, and Europe as a whole. The very idea of a government-led bailout is, due to a combination of historical and political reasons, an anathema to many German politicians. Memories still remain of the hyper-inflation which plagued the Weimar Republic and contributed to the rise of Hitler and the Nazi party.
Germany’s current government has fiercely fought against the European Central Bank’s attempts to write off debt and to bail out the banks of southern European nations, seeing itself as the guardian of financial responsibility within the Eurozone.
Banks in Cyprus were allowed to go to the wall when they were in trouble in 2012-13, with ordinary savers loosing around 10 percent of their savings to re-capitalise the bank.
Two years ago, Merkel stood by as the Greek banking system teetered on the brink of collapse, refusing to act until the rebellious Syriza government fell back into line. The Italian banking sector has been in crisis for several months, weighed down by a mountain of bad loans, yet the German Government has insisted Italy follows Eurozone rules, which dictate depositors have to shoulder some of a banks’ losses.
If Angela Merkel does bailout a struggling German bank -- and rumours suggest her government is willing to take a 20 percent stake in Deutsche Bank despite their public denials -- it would seem to the rest of Europe as a huge case of hypocrisy.
Southern European countries like Italy and Greece would rightly question why there is one rule for Germany and another for everyone else. It is not difficult to imagine the protests on the streets of Athens and Rome which would swiftly result. In fact, it would make life even more difficult for the Italian Prime Minister, Matteo Renzi, who is already facing an uphill battle to win a referendum on constitutional reform, which is seen as a vote of confidence in his leadership.
If Germany does bail out Deutsche Bank and continues to refuse a comprehensive rescue for the Italian banking system, it could create a tidal wave of anti-EU/German feeling within Italy, which would swiftly bring down Renzi’s government and bring the Eurosceptic Five Star Movement to power. Their major pledge to hold a referendum on Italy’s membership of the Eurozone would be but a formality, and the Eurozone would lose its third largest economy.
Agreeing to an Italian bailout is not seen as a much better option. There is significant fear within Brussels and Berlin that such a move would lead to a cascade of bailout requests, which could in turn bring down the Eurozone.
If the prospect of bailing out Deutsche Bank appears grim, then the prospects of its collapse are even worse. If Deutsche Bank collapses, which is entirely possible as the 2008 financial crisis demonstrated, it would almost certainly bring down the Italian banking system with it. A domino effect could easily see the French, Greek and Spanish banking systems follow them. Such a development would be a disaster for the Eurozone economy, which is in no position to withstand such a shock.
Angela Merkel is thus caught in an awful dilemma. Bailing out Deutsche Bank may save the Eurozone economy in the short term, but at huge political cost.
Allowing it to fail may be in line with German policy, but would almost certainly bring down the €uro and with it her government. The fact Europe has come to depend on the fate of one bank, reveals the huge folly of the €uro and the European Union which championed it.
All of this is but further evidence of why we must Get Britain Out of the collapsing EU.
Jayne Adye is the Director of cross-party, grassroots Eurosceptic group Get Britain Out
http://www.thecommentator.com/article/6412/could_deutsche_bank_crisis_cause_the_eu_to_collapse

Deutsche Bank races against time to reach U.S. settlement

Deutsche Bank (DBKGn.DE) is throwing its energies into reaching a settlement before next month's presidential election with U.S. authorities demanding a fine of up to $14 billion for mis-selling mortgage-backed securities.

Mon Oct 3, 2016 | 7:41am BST
By Georgina Prodhan, Kathrin Jones and Lawrence Delevingne | FRANKFURT

A Deutsche Bank logo adorns a wall at the company's headquarters in Frankfurt, Germany June 9, 2015. REUTERS/Ralph Orlowski/File Photo

The threat of such a large fine has pushed Deutsche shares to record lows, and a cut-price settlement is urgently needed to reverse the trend and help to restore confidence in Germany's largest lender.
Its shares won't trade in Germany on Monday because of a public holiday, but they will resume trading on the U.S. market later on Monday.
A media report late on Friday that Deutsche and the U.S. Department of Justice were close to agreeing on a settlement of $5.4 billion lifted the stock 6 percent higher, but that report has not been confirmed.
The Wall Street Journal reported on Sunday that the bank's talks with the DOJ were continuing. Details are in flux, with no deal yet presented to senior decision makers for approval on either side, the paper said, citing people familiar with the matter.
"Clearly, so long as a fine of this order of magnitude ($14 billion) is an even remote possibility, markets worry," UniCredit Chief Economist Erik F. Nielsen wrote in a note on Sunday.
Ratings agency Moody's said it would be positive for bondholders if the lender could settle for around $3.1 billion, while a fine as high as $5.7 billion would dent 2016 profitability but not significantly impair the bank's capital position.
POTENTIAL RISK
Deutsche is much smaller than Wall Street rivals such as JPMorgan (JPM.N) and Citigroup (C.N).
But it has significant trading relationships with all of the world's largest finance houses and the International Monetary Fund this year identified it as a bigger potential risk to the wider financial system than any other global bank.
Deutsche Chief Executive John Cryan will be in Washington this week for the annual meeting of the IMF, and the Frankfurter Allgemeine Zeitung reported that other executives would join him to try to negotiate a settlement with the U.S. authorities.
Like fellow large European banks also under investigation for mis-selling mortgage-backed securities -- Credit Suisse (CSGN.S) and Barclays (BARC.L) -- Deutsche will want to get a deal done with the current administration still in power.
A new administration to be installed after the Nov. 8 election will bring unknown risks and likely delays.
Domestically, Deutsche Bank is fighting a rearguard action, seeking to shore up confidence among the public, politicians and regulators who say the bank brought many of its problems upon itself by overreaching itself and then reacting too slowly to the 2008 financial crisis.
It suffered a further blow to its image this weekend with a third IT outage in the space of a few months on Saturday, denying some customers access to their money for a short time.
INDUSTRY SUPPORT
German business leaders from companies including BASF (BASFn.DE), Daimler (DAIGn.DE), E.ON (EONGn.DE), RWE (RWEG.DE) and Siemens (SIEGn.DE) lined up to defend the bank in a front-page article in the Frankfurter Allgemeine Sonntagszeitung.
"German industry needs a Deutsche Bank to accompany us out into the world," BASF Chairman Juergen Hambrecht said.
A spokesman for a blue-chip company that did not feature in the article told Reuters he had been asked by Deutsche for an executive to provide a similar supportive comment.
Deutsche Bank and the government in Berlin have had to play a delicate balancing act, emphasizing the substance and importance of the bank without implying any need for state aid or willingness to supply it.
The bank has a market capitalization of only about 15.9 billion euros ($17.9 billion) and would almost certainly have to raise fresh cash to pay the full DOJ demand.
Both the bank and Berlin this week denied reports that the government was preparing a rescue plan.
The Bild am Sonntag newspaper wrote on Sunday that Deutsche's chairman had informed Berlin just before it disclosed the potential $14 billion fine but had not asked for help.
The same newspaper quoted the president of the Bavarian Finance Centre, Wolfgang Gerke, as saying that the German government should step in and buy a 20 percent stake in the bank before its value fell any further. The group represents financial services companies in the southern German state.

"Fundamentally, I'm against state interventions," he told the newspaper, but added that in this case a government stake would be "a signal that could turn the whole market".
http://uk.reuters.com/article/us-germany-deutsche-bank-idUKKCN1220NA?type=companyNews