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Monday, 03 October 2016 12:46

Why Do So Many Financial Pundits Try To Downplay the Obviously Serious Financial Problems of Deutsche Bank? Featured

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db research dynamic market driven rebate

I noticed that most in the financial community are going out of their way to demonstrate that Deutsche Bank is not a Lehman 2.0. They are probably right, its most likely a Deutsche 1.0! Mohammed El-Arian has penned an article in Blloomberg, which I'll excerpt as follows:

Yes, there are questions about the bank's balance sheets, including the complicated valuations of "level 3" assets. But Deutsche Bank's sources of funding are much more diversified and its balance sheet is significantly more robust that Lehman's ever was. Also unlike Lehman, Deutsche Bank has access to emergency funding at a central bank, in this case, the European Central Bank.

The greatest portion of DB's funding comes from it's depositor base. The funding is also the most transient, literally being able to be called away at a moments notice. This is not dooming and glooming either. There's a very credible reason why depositors would (and probably should) pull their money out of DB, and that is a total lack of adequate compensation for the risks assumed. This video explains it all, and you can even reference the spreadsheet here to run your own numbers.

One of the causes of this inability of DB to properly compensate its investors for the risks that it entails is the synthetic manipulation of rates by the ECB and their NIRP policy, and its actually getting much worse. You can even quote Bloomberg - Negative-Yielding Bonds Jump to Almost $12 Trillion. I've written a lot about a depositor and counterparty-led run at DB: 

And back to the article at hand...

And it has internal means of generating capital (including through asset disposals and even a rights issue), even though the more such methods are used, the less attractive they are to management and existing shareholders. Moreover, given its accumulated litigation reserves, the pressures would also lessen if, as was hinted at in some news reports at the end of last week, the bank reached a settlement with the U.S. Justice Department that required it to pay far less than the original fine of $14 billion.

DB's capital situation is not as rosy as Mr. El Arian is making it seem. All you, I or Mr. El-Arian has to do is read the balance sheet. Here, I'll do it for you - as excepted from page 5 of Derivative Risk Exposure of Major Banks to Deustche Bank:

DB Captial Demand vs. Supply

'Nuff said.

The environment is quite different, too. Deutsche Bank is not part of a growing storm making its way through the global financial system. Although some European banks remain fragile, others around the world have notably strengthened their capital cushions, are deploying more prudent liquidity-management approaches, and have made significant progress in cleaning up their liabilities. Importantly in terms of systemic effects, this is particularly the case for U.S. banks.

bank funding stresses

bank funding stresses1Yes, Mr. El Arian, but those very same banks are standing as counterparties to these troubled banks of size. As a matter of fact, they are the hedges for the troubled banks - a direct means of contagion. The European banks have not cleaned up their liabilities in the form that most people would be led to believe. They purchased financially engineered instruments to shift the "economic risk" off balance sheet and onto someone else's, or at least that's what they would have one to believe. They are not selling off bad assets, they are writing CDS and TRS on top of them. This only works when the other side pays up. This will not happen if everyone requested payment at the same time, as was the case with AIG, MBIA and Ambac 9 years ago. There's a very big difference between selling and asset and buying a contract that says you are getting protection to the downside of an asset, particularly if you are buying said contract from someone who is in a very similar industry and situation that you are in. Correlation risk! Speaking of correlation and risk... European Banks Cutting 20,000 Jobs as ING Joins Commerzbank

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

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 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


Read 2843 times Last modified on Tuesday, 04 October 2016 06:16

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