{"id":92425,"date":"2016-07-05T07:45:27","date_gmt":"2016-07-05T11:45:27","guid":{"rendered":"http:\/\/countingpips.com\/?p=92425"},"modified":"2016-07-05T07:45:27","modified_gmt":"2016-07-05T11:45:27","slug":"deutsche-bank-to-initiate-the-next-financial-crisis","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2016\/07\/deutsche-bank-to-initiate-the-next-financial-crisis\/","title":{"rendered":"Deutsche Bank to initiate the next \u201cfinancial crisis\u201d!"},"content":{"rendered":"
July 5, 2016<\/div>
\r\n<\/div><\/div>

By\u00a0Chris Vermeulen –\u00a0TheGoldAndOilGuy.com<\/a><\/strong><\/p>\n

I am certain that you remember Lehman Brothers and the \u201cchaos\u201d that it created when it \u2018failed\u2019. If you think that the Worlds\u2019 Central Banks are now wiser and consequently will not allow another similar event to occur, think again. We will not only see a repeat of this occurrence, again, but it will be exponentially larger than Lehman\u2019s was!<\/p>\n

On June 29th<\/sup>, 2016 the IMF stated that \u201camong the [globally systemically important banks], Deutsche Bank appears to be the most important net contributor to systemic risks, followed by HSBC and Credit Suisse,\u201d reports The Wall Street Journal.<\/a><\/p>\n

However, if you were to believe that statement, why should you be concerned about a German bank and how it will affect you while living in the U.S.? The IMF adds: \u201cIn particular, Germany, France, the U.K. and the U.S. have the highest degree of outward spillovers as measured by the average percentage of capital loss of other banking systems due to banking sector shock in the source country,\u201d reports Bloomberg<\/a>. The chart below clearly shows the systemic risks emanating out of a Deutsche Bank (DBK) collapse.<\/p>\n

\"db1\"<\/p>\n

Two years in succession, the American unit of Deutsche Bank has failed the FED\u2019s \u201cstress test\u201d which is what determines the ability of the bank to weather out yet another \u2018financial crisis\u2019.<\/p>\n

\u00a0<\/strong><\/p>\n

Leverage of Lehman vs. Deutsche Bank:<\/strong><\/p>

\r\n
\r\n

Free Reports:<\/p><\/div>\r\n

\r\n

<\/a>\r\n\t Get Our Free Metatrader 4 Indicators<\/u><\/b><\/a> - Put Our Free MetaTrader 4 Custom Indicators on your charts when you join our Weekly Newsletter<\/p>

\r\n
\r\n
\r\n

<\/a>\r\n\t Get our Weekly Commitment of Traders Reports<\/u><\/b><\/a> - See where the biggest traders (Hedge Funds and Commercial Hedgers) are positioned in the futures markets on a weekly basis.<\/p>

\r\n<\/div>\r\n

\r\n
<\/div>\n

In 2007, Lehman had a leverage (the ratio of total assets to shareholder\u2019s equity) of 31:1. \u00a0At the time that Lehman filed for bankruptcy, it had $639 billion in assets and $619 billion in debt. Still, it caused a \u2018systemic risk\u2019 worldwide.<\/p>\n

In comparison, DBK has a mind boggling leverage of 40x<\/a>, according to Berenberg analyst, James Chappell. He stated, \u201cfacing an illiquid credit market limiting Deutsche Bank\u2019s (DBK) ability to deliver and with core profitability impaired, it is hard to see how DBK can escape this vicious circle without raising more capital. The CEO has eschewed this route for now, in the hope that self-help can break this loop, but with risk being re-priced again it is hard to see DBK succeeding.\u201d<\/p>\n

Why Can\u2019t the ECB save DBK in the similar fashion as how the FED saved the banks, in the US?<\/strong><\/p>\n

The nominal value of derivatives risk<\/a> that DBK holds on its\u2019 books is $72.8 trillion, according to the banks\u2019 April 2016 earnings report. What is astounding about this, is that a single bank owns 13% of the total outstanding global derivatives, which was a staggering $550 trillion in 2015.<\/p>\n

What is more concerning and alarming is that the market cap of DBK is less than $20 billion.<\/p>\n

Nonetheless, the nominal value of derivatives exposure does not mean that DBK will have a default worth trillions of dollars seeing as most of the contracts are covered by counterparties. However, when the domino effect is put into motion, we have witnessed how it engulfs the entire world, into it.<\/p>\n

If the domino effect does occur, Germany with its GDP of $4 trillion or the EU with a GDP of $18 trillion will not be in a position to gain control over it.<\/p>\n

A nominal figure of the high derivatives risk on DBK, as of December 2014, is shown in the chart below.<\/p>\n

\"db2\"<\/p>\n

\u00a0<\/strong><\/p>\n

Negative interest regime is NOT the solution to global economic problems which we are facing today:<\/strong><\/p>\n

The European Central Banks\u2019 NIRP policy is making matters worse for DBK, as the banks\u2019 profits are getting squeezed thus making it difficult for it to repair its\u2019 balance sheet.<\/p>\n

The bank is finding it difficult to sell its\u2019 assets because of illiquid credit markets. The banks\u2019 management will also find it difficult to raise capital as the investment-banking industry is in a \u201cstructural decline\u201d, according to Berenbergs\u2019 James Chappell.<\/p>\n

\u00a0<\/strong><\/p>\n

\u00a0<\/strong>BREXIT is adding to the woes:<\/strong><\/p>\n

DBK receives 19% of its\u2019 revenues from the UK. After the \u201cBREXIT\u201d vote, the uncertainty regarding future relations of the U.K. with Europe has increased the risk for all of the banks. President Francois Hollande of France is eyeing the financial industry and is pitching for them to move to Paris from London.<\/p>\n

DBK is the biggest<\/a> European bank in London. Moving operations, which are handled by 8,000 members of the staff, will not be an easy task for DBK and will further weaken their balance sheet.<\/p>\n

\u00a0<\/strong><\/p>\n

How is the stock behaving?<\/strong><\/p>\n

The stock is in a downtrend and has broken below the panic lows of 2009.<\/p>\n

\"db3\"<\/p>\n

The stock is quoting at a price to book ratio of 0.251<\/a>, which indicates the pessimism of the markets towards the stock. The investors believe that the stock is not worth more than a quarter of its\u2019 liquidation value.<\/p>\n

A comparative study of the stock, with Lehman, gives a more accurate picture of the future price of DBK, which is zero.<\/p>\n

\"db4\"<\/p>\n

The German Newspaper \u2018Die Welt\u2019 reported that the great George Soros had recently opened a short position of 0.51% of the DBK\u2019s outstanding shares. This equates to 7 million shares, worth $7.5 billion, reports Investopedia<\/a>.<\/p>\n

\u00a0<\/strong><\/p>\n

\u00a0<\/strong>Conclusion:<\/strong><\/p>\n

The easy monetary policy of various Central Banks is the main reason for the banks holding such massive leverage. The \u201cnext financial crisis\u201d will cause the Central Banks\u2019 actions to be redundant and ineffective, as they will not be in a position to control this impending catastrophe! In such a situation, the world will revert to the only remaining resort left, and that is gold.<\/p>\n

My readers have benefited immensely during the mini-crash post the \u2018BREXIT\u2019. Please continue to\u00a0follow me<\/a><\/strong> so as you can protect yourself from the next \u201cbig one\u201d, which will wipe out tens of trillions of dollars around the world.<\/p>\n

Chris Vermeulen
\nTheGoldAndOilGuy.com<\/a><\/p>\n

 <\/p>\n

 <\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

By\u00a0Chris Vermeulen –\u00a0TheGoldAndOilGuy.com I am certain that you remember Lehman Brothers and the \u201cchaos\u201d that it created when it \u2018failed\u2019. If you think that the Worlds\u2019 Central Banks are now wiser and consequently will not allow another similar event to occur, think again. We will not only see a repeat of this occurrence, again, but […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-92425","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/92425","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=92425"}],"version-history":[{"count":1,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/92425\/revisions"}],"predecessor-version":[{"id":92426,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/92425\/revisions\/92426"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=92425"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=92425"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=92425"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}