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Friday, 30 September 2016 08:59

And Exactly As I Predicted, The Run on Deutsche Bank Begins... Featured

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I've dedicated three articles on a customer and counterparty run on Deutsche Bank.

  1. Revisiting the Run on Deutsche Bank: Making the Hypothetical Frighteningly Realistic - You've Been Warned!
  2. The Next "I Told You So" Concerning Deutsche Bank Will Hurt Depositors... A Lot! 
This morning, Bloomberg reports that it's getting real, reporting Cryan Defends Deutsche Bank as Some Clients Pare Back Exposure. Millennium, Capula are among counterparties shifting positions. I warned about the counterparty run in Deustche Bank and the Anatomy Of A European Bank Run: Look at the Situation BEFORE The Run Occurs. As quoted from the Bloomberg article:

Deutsche Bank AG Chief Executive Officer John Cryan rushed to shore up confidence in his beleaguered lender after concern some clients are reducing exposure to the company pushed shares to record lows.

The bank’s balance sheet is safer than at any point in the past two decades, Cryan told staff in a memo Friday. “Trust is the foundation of banking. Some forces in the markets are currently trying to damage this trust,” he said

This is more than just trust, it's common sense. I am in no way trying to undermine trust, but I am all if on the truth. On April 14 2015 I penned "Fu$k the Fundamentals!": Negative Rates In EU Will Absolutely Wreck the Very System the ECB Sought to Save. I have been warning Veritaseum users about the unbridled risks the ECB is taking with its banking system by slamming its yield curve - driving short and medium term rates negative. Yes, the ECB needs to get much more blame than those who are asking investors to use common sense. The extremely low rate that DB pays its investors comes nowhere near the risk they are asking said investors to take. To wit, let's explore what the talking heads on Bloomberg had to say:

Analysts also came to the bank’s defense. Stuart Graham at Autonomous Research LLP wrote that Deutsche Bank has enough readily available funds on hand to weather more than two months of severe stress, including trading clients pulling back. Goldman Sachs Group Inc. analysts led by Jernej Omahen said the lender can also access backstops from the European Central Bank.

“Deutsche has many problems, but liquidity is not one of them,” Graham said in a note. “There can be no doubt that Deutsche could access significant additional liquidity from the ECB, should it ever need it.”

Just the mere discussion being had above tells us this far from a risk-free investment for depositors. If it has the risk, even the alleged lower risks being claimed above, why should investors settle for a mere .05%. That's right, .05%
 
 
 

For those who many not remember, DB is domiciled in a bail-in regime state, hence... In case of bankruptcy or risk of bankruptcy of a banking institution, the saver is at risk of losing their savings or may be subject to a reduction / conversion into shares (bail-in) of the amount of the claim that he has the financial setting on top of the amount covered by the double German guarantee scheme for deposits.

Now, what would it look like if one wanted to be compensated for said risk?  Deutsche Bank is essentially a high yield (junk) play that only pays .05%.

If you are going to take risks with a junk company, you might as well get compensated for it. The PIMCO high yield, short duration bond fund (HYS) has arguable a superior risk profile, and pays 93x more. That's right, it pays 9,300% more than Deutsche, for arguably less risk of absolute loss, albeit materially greater risk of price volatility. So, which would one rather, an 80% chance of losing some of your money or a 5% chance of losing nearly all of your money? Hmmm....

 
Here's the disclaimer for the trust: Units of the Trust are not deposits of any bank and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. It's a new day when the disclaiming that units are NOT deposits of a bank can be taken as a net positive, no?
Anybody even remotely skilled in 3rd grade arithmetic can discern that the risks of dealing with DB are no where concomitant with the meager returns it is offering, even if at the behest of the ECB.
 
Screenshot 20160922-081728-picsay
Now, the discussion above has actually centered around depositors, for they are the largest and most stable (if not the potentially most fleeting) funding source for the bank. But there are also counterparties and clients of its prime brokerage services, to wit:

The funds, a small subset of the more than 800 clients in the bank’s hedge fund business, have shifted part of their listed derivatives holdings to other firms this week, according to an internal bank document seen by Bloomberg News. Among them are Izzy Englander’s $34 billion Millennium Partners, Chris Rokos’s $4 billion Rokos Capital Management, and the $14 billion Capula Investment Management, said a person with knowledge of the situation who declined to be identified talking about confidential client matters.

“The issue here is now one of confidence,” said Chris Wheeler, a financial analyst with Atlantic Equities LLP in London. “That’s what’s going on here. The thinking is ‘Deutsche Bank is fine, but there’s a slim chance it might not be, so why leave my money in there?’”

Here's my DB warning from 11 and half months ago...
 Our next article will continue to hammer home the likelihood that DB will have to recapitalize, and where they probably WONT'T be getting the money from, as well as the likelihood it will come from someone who really didn't plan on giving it up (Ahem, depositors/savers/checking account holders). For those who are not yet convinced, peruse these related items...

Here's What A Real, Live Veritaseum 5x Short DB Smart Contract Looks Like to Our Research Subscribers 

 If you haven't heard, we're giving out free, fully smart contracts as a 5% rebate to anyone who purchases any of our research packages above the introductory novice $50 level. This is not your Daddy's rebate! The rebate actually gets larger as DB goes down in price. For those who may be coming late to the party, we can offer a 5x long gold (or even a long gold, short DB) smart contract rebate as well. Of course, the bulk of our research targets banks and entities other than DB, but I thought we'd make DB the subject of the rebate to drive the point home. Below is an actual contract crafted off of the price of a single share of DB for about 2 weeks.

 

The research and knowledge subscription module "European Bank Contagion Assessment, Forensic Analysis & Valuation" contains a full report of a very large European Deutsche Bank counterparty that faces a full 27% downside from current levels. It appears as if no one suspects a clue. It also contains much, much more (including at least 3 to 5 suspect banks). We can break this apart a la carte, if requested.

As excerpted:

Susceptible Bank 1: Financial Modeling

 

 
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