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Deutsche Bank's Chief Economist Calls For €150 Billion Bailout Of European Banks

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http://www.zerohedge.com/news/2016-07-10/deutsche-banks-chief-economist-calls-%E2%82%AC150-billion-bailout-european-banks

The cards have been tipped, and it appears Italy's Prime Minister may have been right.

In the aftermath of Brexit, much of the investing public's attention has turned to Italian banks which are in desperate need of a bailout as a result of €360 billion in bad loans growing worse by the day (and not a bail-in, as European regulations mandate, as that would lead to an immediate bank run) to avoid a freeze and/or collapse of Italy's banking sector. This has pushed stock prices - and default risk - on Italian banks to record levels. So far Italy's bailout requests have mostly fallen on deaf ears, as Germany's political leaders have resisted Renzi's recurring pleas for a taxpayer funded rescue. However, as we have alleged, and as the Italian Prime Minister admitted last week, the core risk for Europe is not just the Italian banking sector but the biggest bank of all in Europe: Deutsche Bank.

Recall last Thursday, when speaking at a joint news conference with Swedish Prime Minister Stefan Lofven, Matteo Renzi said other European banks had much bigger problems than their Italian counterparts.

"If this non-performing loan problem is worth one, the question of derivatives at other banks, at big banks, is worth one hundred. This is the ratio: one to one hundred," Renzi said.

He was, of course, referring to the tens of trillions of derivatives on Deutsche Bank's books.

Today, we got the most definitive confirmation yet that the noose is tightening not only around Italy, but Germany itself (where as we reported on Thursday, Europe's Bank Crisis Arrives In Germany as €29 Billion Bremen Landesbank On The Verge Of Failure) when none other than David Folkerts-Landau, the chief economist of Deutsche Bank, has called for a multi-billion dollar bailout for European banks.

Speaking to Germany's Welt am Sonntag, the economist said European institutions should get fresh capital for a recapitalization following a similar bailout in the US. What he didn't say is that the US bailout took place nearly a decade ago, in the meantime Europe's financial sector was supposed to be fixed courtesy of "prudent" fiscal and monetary policy. It wasn't.

As Landau says the US helped its banks with $475 billion dollars, and such a program is now needed in Europe, especially for Italian banks. In other words, just because the US did it, now it's Europe's turn to ask for more of the same.

"In Europe, the bailout does not need to be so large. A €150 billion program should be enough to help European banks recapitalize," said David Folkerts-Landau. He adds that the decline in bank stocks is only the symptom of a much larger problem, namely a fatal combination of low growth, high debt and a "dangerous" deflation.

"Europe is seriously ill and needs to address very quickly the existing problems, or face an accident," said the chief economist.

The Deutsche Bank expert said he is particularly worried about Italy and the condition of local banks, where the €40 billion in funding needs is said to be "conservative." He said that the bank bailout is so urgent that it should permit Europe to violate the bail-in rules of the new Banking Directive. The economist notes that such a bail-in is not doable and is politically unfeasible because it would hit people's savings and may cause a bank run in both Italy and elsewhere. We find it strange how nobody thought of this before the rules were implemented, or rather how impairing savings was only a problem when "second-rate" European citizens such as those in Cyprus and Greece were affected. Now that Italians and even Germans are in the cross hairs, suddenly "it is time to change the rules."

His conclusion: "Strictly adhering to the rules rules would cause greater harm than if they were suspended."

Does Deutsche Bank need the Italian banks bailing to bail itself out?

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http://www.zerohedge.com/news/2016-07-09/charting-epic-collapse-worlds-most-systemically-dangerous-bank

It’s been almost 10 years in the making, but the fate of one of Europe’s most important financial institutions appears to be sealed.

After a hard-hitting sequence of scandals, poor decisions, and unfortunate events,Visual Capitalist's Jeff Desjardins notes that Frankfurt-based Deutsche Bank shares are now down -48% on the year to $12.60, which is a record-setting low.

Even more stunning is the long-term view of the German institution’s downward spiral.

With a modest $15.8 billion in market capitalization, shares of the 147-year-old company now trade for a paltry 8% of its peak price in May 2007.

deutsche-bank-collapse.jpg
Courtesy of: Visual Capitalist
THE BEGINNING OF THE END

If the deaths of Lehman Brothers and Bear Stearns were quick and painless, the coming demise of Deutsche Bank has been long, drawn out, and painful.

In recent times, Deutsche Bank’s investment banking division has been among the largest in the world, comparable in size to Goldman Sachs, JP Morgan, Bank of America, and Citigroup. However, unlike those other names, Deutsche Bank has been walking wounded since the Financial Crisis, and the German bank has never been able to fully recover.

It’s ironic, because in 2009, the company’s CEO Josef Ackermann boldly proclaimed that Deutsche Bank had plenty of capital, and that it was weathering the crisis better than its competitors.

It turned out, however, that the bank was actually hiding $12 billion in losses to avoid a government bailout. Meanwhile, much of the money the bank did make during this turbulent time in the markets stemmed from the manipulation of Libor rates. Those “wins” were short-lived, since the eventual fine to end the Libor probe would be a record-setting $2.5 billion.

The bank finally had to admit that it actually needed more capital.

In 2013, it raised €3 billion with a rights issue, claiming that no additional funds would be needed. Then in 2014 the bank head-scratchingly proceeded to raise €1.5 billion, and after that, another €8 billion.

A SERIES OF UNFORTUNATE EVENTS

In recent years, Deutsche Bank has desperately been trying to reinvent itself.

Having gone through multiple CEOs since the Financial Crisis, the latest attempt at reinvention involves a massive overhaul of operations and staff announced by co-CEO John Cryan in October 2015. The bank is now in the process of cutting 9,000 employees and ceasing operations in 10 countries. This is where our timeline of Deutsche Bank’s most recent woes begins – and the last six months, in particular, have been fast and furious.

Deutsche Bank started the year by announcing a record-setting loss in 2015 of €6.8 billion.

Cryan went on an immediate PR binge, proclaiming that the bank was “rock solid”. German Finance Minister Wolfgang Schäuble even went out of his way to say he had “no concerns” about Deutsche Bank.

Translation: things are in full-on crisis mode.

In the following weeks, here’s what happened:

  • May 16, 2016: Berenberg Bank warns that DB’s woes may be “insurmountable”, noting that DB is more than 40x levered.
  • June 2, 2016: Two ex-DB employees are charged in ongoing U.S. Libor probe for rigging interest rates. Meanwhile, the UK’s Financial Conduct Authority says there are at least 29 DB employees involved in the scandal.
  • June 23, 2016: Brexit decision hits DB hard. The bank is the largest European bank in London and receives 19% of its revenues from the UK.
  • June 29, 2016: IMF issues statement that “DB appears to be the most important net contributor to systematic risks”.
  • June 30, 2016: Federal Reserve announces that DB fails Fed stress test in US, due to “poor risk management and financial planning”.

Doesn’t sound “rock solid”, does it?

That's some share price collapse.

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Even Handelsblatt are in doom and gloom mode, normally Deutsche's only cheerleader

https://global.handelsblatt.com/edition/467/ressort/finance/article/banks-on-brink-as-contagion-fears-grow

describe the profitability of the 50 biggest European banks as, on average, “catastrophic.” The return on equity of large banks in the euro zone was actually 4.5 percent in 2015, well below the cost of capital.

Unless banks change their business models, ZEB consultants fear there could be a “dramatic decline” in profits and capital buffers by 2020. The result would be a giant gap in capital. In this scenario, the consultants assume that the phase of low interest rates will continue for another five years and that banking regulations will become increasingly strict during this time. The experts estimate that the shortfall will come to €445 billion in 2020 – three times as much as all capital increases since 2007.

But even if banks react and cut their costs by 30 percent, for example, the ZEB experts do not believe that they will manage to plug the gap in capital unaided. The problem, they say, is that it is “extremely unlikely” that long-suffering investors will be willing to put up fresh funds yet again.

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I'm currently contracting at DB. Its pretty grim there, but in my area (IT) there is a sense of complete denial.

They announced a new secondary site in London (Canary Wharf Office) with a huge spend to make it state of the art to match its Birmingham site.

Their MD's are routinely meeting the FCA and ECB/SEC due to breaches in regulations, Libor etc

They are spending a fortune on Compliance and Security/Auditing to reassure the regulators around the workld

And allt he time they are NOT making any money.

ALL budgets are begin frozen or slashed and jobs are going.

Sinking ship for sure (luckily i've already lined up my exit next month)

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I'm currently contracting at DB. Its pretty grim there, but in my area (IT) there is a sense of complete denial.

They announced a new secondary site in London (Canary Wharf Office) with a huge spend to make it state of the art to match its Birmingham site.

Their MD's are routinely meeting the FCA and ECB/SEC due to breaches in regulations, Libor etc

They are spending a fortune on Compliance and Security/Auditing to reassure the regulators around the workld

And allt he time they are NOT making any money.

ALL budgets are begin frozen or slashed and jobs are going.

Sinking ship for sure (luckily i've already lined up my exit next month)

Well .. as soon as a bank falters then the reuglators are over it like a rash.

Its that leverage!

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Nice bail ins for some but bailouts for others ,they change the law to suit ...thank feck we are on the way out

Sooner or later the penny might drop, that staying or leaving, the global economic gorilla in the room is the catastrophe round the corner.

The referendum, and now the result, are just false flags. A result either way can't change what is already coming round that corner.

Lower interest rates, QE, or helicopter money, will only buy time..._

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Sooner or later the penny might drop, that staying or leaving, the global economic gorilla in the room is the catastrophe round the corner.

The referendum, and now the result, are just false flags. A result either way can't change what is already coming round that corner.

Lower interest rates, QE, or helicopter money, will only buy time..._

it`s not that it`s the fact they have destroyed and controlled the southern states ,but when its their turn to feel the pain they just change the law to suit ....it`s no union it`s them and us

Edited by long time lurking

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........when its their turn to feel the pain they just change the law to suit ....it`s no union it`s them and us

No different in the UK. Quite what the difference is between getting shafted by Whitehall, or shafted by Brussels was always beyond me..._

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I suggest to take the $150B to make whole retail depositors, and let the banks go bust. Something good or at least better might rise from their ashes.

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assets of 1.64 trillion euro
liabilities of 1.58 trillion euros
net value €60 bn

Trading at what... 18-20% of the book value of its net assets?

I know those class 3/grade 3 assets are said be difficult to value, or illiquid. I do believe though, that all the debt by itself (on banker side) is not always the weight some believe it is, for it also balanced out with claims on assets (to be resold maybe) of the actual debtors themselves, although I don't know how it's all set out in investment banking. However it can't just be all their own pure debt. It's got to be against something else market participants themselves enjoying control, or value of.

A similar dynamic holds in the creation and destruction of credit. Let's suppose a lender starts with a million dollars and the borrower starts with zero. Upon extending the loan, the borrower possesses the million dollars, yet the lender feels that he still owns the million dollars that he lent out. If anyone asks the lender what he is worth, he says, "A million dollars," and shows the note to prove it. Because of this conviction, there is, in the minds of the debtor and the creditor combined, two million dollars of value where before there was only one. (.... if the borrower can't pay it....) -Pretcher.

For all Euro banks, I can only see world-wide prime HPC as the way out, followed by years of volume lending and transactions. Like in early 80s UK when transactions so much higher than today (too many BTLers preventing market clearance), as the way out - but DB is a core investment bank, with questions about its standing vs competition with existing operations and what any strategic vision might be (lacking some operations that keep the money churning in at other banks).

*

FT: Is it finally time to buy Deutsche Bank stock?
The German bank’s share price is cheap but there may be even worse ahead for the lender
February 1, 2016

HPC on all the long-wave hpi older owners, and BTL investors. A big turn on them. Hopefully all the ECB QE so far is bolster banks for a turn ahead. Although it's all so awful because few other businesses get such special treatment. They need to cut their own jumbo salaries, not get €bns bailout money. Get broken up, and let market work it out, if they can't handle the market - not get bailout money.

Edited by Venger

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Sooner or later the penny might drop, that staying or leaving, the global economic gorilla in the room is the catastrophe round the corner.

The referendum, and now the result, are just false flags. A result either way can't change what is already coming round that corner.

Lower interest rates, QE, or helicopter money, will HAS only buy time..._

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We'll all be watching like hawks to see whether the Germans force the Italians to socialise losses of Italian banks to save Deutsche.

I dont think Germans have lent any Italian banks money.

German bankers are dumb but not that dumb.

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assets of 1.64 trillion euro

liabilities of 1.58 trillion euros

net value €60 bn

Trading at what... 18-20% of the book value of its net assets?

Just imagine 10% drop. You get € -100 bn.

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Dark Pools - remember them or has that illegal operating method been legalised for DB.

More like a whirlpool, dark and swirling, sucking all around it down.

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Japan's zero coupon(never have to pay back) helicopter drop, courtesy of some arm twisting from Bernanke's recent visit, is the bank bailout that was requested, via the yen carry trade.

Enjoy it while it lasts. They are sowing the seeds of the whirlwind.

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