Sunday, 16 June 2019

A Analysis

 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.

Veritaseum 5x Short DB Smart Contract

Click here to explore and subscribe to our research. You will have to be willing to fully identify yourself and comply to the terms or our program (in essence, promise not to use the package for anything other than our rebate) in order to qualify for the rebate. Once the subsciption is paid for, email us to get started.

Oh yeah, if you haven't heard...

An Analysis of Deutsche Bank's Likely Recapitalization - German Tax Payer Bailout or German Bank Depositor Bail-in?

Deutsche Bank is going to need some money, and it's going to need some quite soon. The next two or three articles that I write will focus on why there is such a need. In a concerted effort to reduce or potentially eliminated the risk of taxpayer-funded bail-outs of European banks, the EU implemented a new “bail-in” regime beginning on January 1, 2016. As such, rules which require banks and certain systemically significant market participants in EU member states will have to write-down, cancel, convert into equity or otherwise modify certain unsecured liabilities if such steps are required to recapitalize the institution. What is the most bountiful unsecured liabilities of a bank? Read more...

 

Our next article will continue to hammer home the liklhood 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...

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

 

This is the 4th installment of our public service announcements on Deutsche Bank subsidiary, Xetra-Gold's gold note offerings. Since a lot has been covered already, it's advisable that you read the first 3 articles to catch up:

  1. Veritaseum Knowledge Exposes Frightening Counterparty Risk At Deutsche Bank for "Gold Investors"
  2. Is Deutsche Bank Prepping for Fraud Charges Against It's Gold Derivative Products?
  3. The Debate on the Potential of Fraudulent Actions At Deutsche Bank Subsidiary, Xetra-Gold

Now, that we have determined that Deutsche Bank subsidiary Xetra-Gold "may" not have been fraudulent, mainly because they stated in their prospectus things that contradict and befuddle the misleading things they stated in their marketing material, we are left to ponder, "Well, we know the offering was unethical, but was it illegal?" Unfortunately, I'm not a lawyer thus cannot accurately opine on such. Alas, I can speculate as a laymen. The Xetra-Gold derivatives were offered in the UK, as well as several other jurisdictions. Let's peruse the UK perspective via the FCA in the difference between clear and misleading financial advertising:

"Financial adverts and promotions can be misleading for many reasons, but there are some questions you can consider to help you spot and avoid misleading financial adverts, such as: ... Are there important points that are only shown in the small print?"

Hmm... Let's take a look at the Xetra-Gold advertisement, and cross reference it to it's prospectus:

DB Xetra-Gold false advertising test

You guys tell me, is this a blatant case of false advertising, or is it not? Let me know in the comment section below. It's not as if DB is totally innocent in these matters, for they just signed a consent order admitting the manipulation of gold prices. This goes deeper than many may care to admit. Deutsche bank seems to be dumping its gold exposure, and what better way to dump it than to sell it unsuspecting gold derivative note buyers. This is how it could be going down...

Deutsche Bank, through it's Xetra-Gold subsidiary, has a guaranteed, zero premium call option.

  1. DB/Xetra-Gold accepts money from investors who are told they are buying gold, from “an economic perspective”.
  2. DB/Xetra-Gold takes money that was supposed to buy gold (at least in the eyes of many investors) and does whatever they want with it (which could include buying gold) because gold delivery on demand is not guaranteed and the investors have been disclaimed against ownership of, and rights to, the gold underlying as well as price correlation, and failure to deliver.
  3. If the price of gold goes up, DB/Xetra-Gold can fail to deliver (as disclaimed) and keep the capital gains profits. They don't even have to match the price of the gold underlying. or return the initial investment.
  4. If the price of gold goes down, DB can deliver gold on demand and keep the spread from gold spot and the price originally charged for the gold notes.

This is good work, if you can get it, no? 

This is how a company like DB can have over 90% in profitable trading days, because they never had a chance of losing in the first place. The losses belong to their clients! This is speculation, of course (wink, wink). Now, legal eagles say that we can't scream fraud, because Deutsche clearly says they have the motivation to, and the ability to, rip you off in their prospectus (but not in their marketing materials).

DB

Which leads us to the end of "The Debate on the Potential of Fraudulent Actions At Deutsche Bank Subsidiary, Xetra-Gold", where John Titus (see his videos at the end of this article at the bottom) explained to me after I queried about misleading and contradictory marketing materials:

I asked, "If marketing materials are negatively contradicted by the prospectus then the marketing materials are fraudulent and misrepresentative, no?" He replied...

Misrepresentative, yes (accepting your definition of economic), and the marketing materials probably do in fact flout any number of laws against false advertising.
 
But fraudulent, no. The essence of fraud is to falsely induce someone by words or acts into doing something against his interests that he wouldn't have done but for the dishonesty. Courts consider the totality of the circumstances. So while you would undoubtedly tear the economic investment statement to shreds, you'd still be left with the many other statements from the prospectus that are true, and herein lies the problem.
 
The UK Fraud Act of 2006 is a criminal statute. So each element of the crime has to be proved beyond a reasonable doubt (or whatever the English equivalent burden of proof is). The first element of fraud by false representation under the Act is "dishonestly makes a false representation." The problem posed by the prospectus is that it would preclude a finding that DB acted dishonestly beyond a reasonable doubt. I mean, you've got one false (but arguably vague) statement vs. several clear-cut disclaimers that are accurate. The totality of the statements are perhaps half false and half true, but dishonest beyond a reasonable doubt? Fuhgetaboutit. DB played the game with all of its cards face up. Yeah, they contradicted each other, but they were damn sure visible to investors, who can claim they were misled only in a subjective (personal) sense, not in an objective way (which is how a judge would look at it).
 
Now, if--in addition to the mktg mat's and the prospectus--you've got some Goldman-like behavior where DB took out massive insurance policies on the investments it sold and concealed them from the buyer, it's a totally different story."

Hmmm... On that note, let's take a look at whether DB has been a net buyer or net seller of gold exposure. Remember, Goldman, sold MBS structures to clients and then took big short positions betting against their own clients, reference "Goldman 'bet against securities it sold to clients'.

The subcommittee also released four internal Goldman Sachs emails. In one, says a subcommittee statement: "Goldman employees discussed the ups and downs of securities that were underwritten and sold by Goldman and tied to mortgages issued by Washington Mutual Bank's sub-prime lender, Long Beach Mortgage Company. Reporting the 'wipe-out' of one Long Beach security and the 'imminent' collapse of another as 'bad news' that would cost the firm $2.5m, a Goldman Sachs employee then reported the 'good news' – that the failure would bring the firm $5m from a bet it had placed against the very securities it had assembled and sold."

Goldman is fighting to clear its name after the $1bn fraud charges brought by the US Securities and Exchange Commission last week, and wants the case settled in court.

The movie, "The Big Short" dramatized this rather well.

Well, guess what it looks like Deustche has been doing...

DB gold exposure expressed as VaRDeustche has been a net seller of foreign exchange risk, which includes (wait for it now, and guess....) gold! They probably were not cash sellers, but purchased swaps to reduce exposure, possibly along the parameters I mentioned above with the guaranteed, zero premium call option.

If you enjoy this free analysis, there's much more where this came from as we pick apart many other banks in our paid research and knowledge modules. WE just finished a true forensic valuation (very extensive, and detailed analysis) of a very large European bank that led to a huge short recommendation. Subscribe here and pass the word. Our bank analyses have performed very well in 2016, with Banco Popular and Banco Popular Milano doing roughly 40% to 80% in theoretical returns (contingent on how the positions were taken). We have done an excellent job historically as well, calling the fall of Bear Stearns, Lehman, Countrywide, GGP, etc. If you think the free stuff is intense, you should see the stuff that we sell!

Thursday, 25 August 2016 15:01

How Deutsche Bank Can Destroy Europe

How can Deutsche Bank destroy the EU? Capital fight and extreme, involuntary deleveraging. DB is closing nearly 200 German bank branches. Not a big deal, right? German bank's depositor base is 111% of German GDP. A run on German banks is literally a run on the German economy - the largest economy in Europe...

fredgraph 1

...not to mention a major (the major) funding source for DB's massive derivative positions.  

Current news events don't portend a positive outcome for Germany's largest bank either. Bloomberg reports: NordLB Boosts Shipping Provisions Five-Fold, Warns of High Loss

Norddeutsche Landesbank boosted provisions for bad loans nearly fivefold to 1 billion euros ($1.1 billion), as Germany’s biggest shipping lender prepares for its first full-year loss since 2009.

NordLB, controlled by the state of Lower Saxony, posted a loss of 406 million euros in the first half as it battles a prolonged slump in maritime markets, including eight years of crisis in the container segment. That compares with a profit of 290 million euros in the same period last year.

“The shipping crisis, which further intensified in the first half of the year, has necessitated impairments that were higher than planned,” Chief Executive Officer Gunter Dunkel said in a statement. The bank lowered its outlook for the year, now anticipating a “significant” loss. It had projected a “negative result” in the spring.

... NordLB’s pessimistic view highlights risks at other German banks, which hold roughly one-quarter of the about 400 billion euros in global shipping loans. Under pressure to unwind sour legacy maritime assets, banks including HSH Nordbank AG and Commerzbank AG are also trying to shrink their loan books.

 What does this have to do with Deutsche Bank? A lot! Because everybody wants to sell these assets that aren't considered very desirable, and all at the same time, we've made a bad situation worse - precisely when DB can't afford it.DB mass selling bad shiping loans

Then there's the issue of DB's somewhat questionable assumptions and characteristics in its financial reporting. Deutsche Bank addendums are quoted as saying:

"The credit risk on the securities purchased under resale agreements and securities borrowed designated under the fair value option is mitigated by the holding of collateral. The valuation of these instruments takes into account the credit enhancement in the form of the collateral received. As such there is no material movement during the year or cumulatively due to movements in counterparty credit risk on these instruments."

What???!!! So, the value of collateral doesn't move now? On planet Earth, not only does the value of collateral move, it tends to move in the exact same direction as the value of the loan, borrowing or underlying, often at an exaggerated pace in the beginning (it's markets are the first to know of turmoil). Reference my podcast interview with Max Keiser at the 2:40 marker. Want some more? Read this page from our EU banking report a couple of quarters ago...

For those who don't believe me, I made this call in early 2008 - twice. Once for Bear Stearns (Is this the Breaking of the Bear?) and once for Lehman Brothers (Is Lehman really a lemming in disguise? Thursday, February 21st, 2008 | Web chatter on Lehman Brothers Sunday, March 16th, 2008). Was I right? Of course, that was then and this is now, so the banks are better prepared, right? Of course. The graphic below was taken from our Banco Popular report (click here for more info), not from 8 years ago, but from a quarter ago - yes, 2016! Hey, there's more...

Banco Popular Research teaser3

Now, just imagine that Italy's Banco Popular is the entity that DB used to hedge it's exposure, and Banco Popular (obviously) can't pay up on every(any?)thing. DB's gross exposure become's DB's net exposure as DB's notion value and market value converge near instantaneously if (or when) market shoots off in one direction (you can likely guess what direction that would be for stakeholders, and this time around that includes depositors and bondholders, not just shareholders).

What does this all mean?  Well, we went through this in explicit detail and have identified no less than 6 (and we're still actively looking) financial institutions that may have passed the EBA stress tests, but have miserably failed our examination - and that's without adding in the bank contagion factor!

To partake in this knowledge, join Veritaseum University and purchase the interactive research asset called "European Bank Contagion Assessment, Forensic Analysis & Valuation".

 

In continuing my PSA on well funded bitcoin startup valuations (reference Imy valuation estimate of Bitpay, a rapidly growing payment processor), I bring a forensic analysis and valuation of Coinbase, likely the 2nd largest money exchanger in the bitcoin business.

 Valuation Case 2- COINBASE

Revenues for Coinbase is calculated based on global monthly transaction size (US$) of the company. Annualizing the transaction resulted in Total transactions for 2014  

As per the information available, Coinbase charges 1% as transaction fee resulting in the revenue of the company.    

Table 3- Revenue Forecast, US$

 
 

2014F

2015F

2016F

 

Annual Transactions*, US$

1,085,488,973

     1,248,312,319

     1,435,559,166

 

Transaction Fee (%)

1.0%

1.0%

1.0%

 

Total Revenue

        10,854,890

    12,483,123

    14,355,592

 

*Growth assumed under moderate scenario

 

As per the news for funding in Coinbase, the valuation of Coinbase ranged between US$140 million – US$1 billion. Based on weighted average (by applying 70% weight to the lower figure in the range), the above valuation is derived at US$398 million. Applying the multiples at which Bitpay and Circle are estimated to have been funded recently (using average revenue multiple of Bitpay and Circle), the valuation based on 2015 and 2016 revenues is as shown below:

Table 4- Relative valuation

Particulars

2015F

2016F

Revenue ($)

    12,483,123

    14,355,592

Multiple Comparable- Bitpay and Circle

16.0x

13.5x

Valuation (US$mn)

                      200.31

                      194.23

 

Of course, we feel that these rapidly growing payment processor companies, although now profitable and expanding their reach like weeds, are barely touching the tip of what the Bitcoin industry will look like just two years into the future. 

Wall street, pay attention!!!

Veritaseum short summmary pic - public.docx Page 01

Veritaseum short summmary pic - public.docx Page 02Veritaseum short summmary pic - public.docx Page 03Veritaseum short summmary pic - public.docx Page 04

See also:

  1. Payment Processors, Patents and a Dollop of Healthy Paranoia
  2. Margin Compression Is Coming in the Payment Processing Space As $100 Million Pours Into Startups
  3. Bitcoin Myth Busting 101

 

After an interesting discussion with those in my laboratory, I've decided to apply the forensic analysis team from BoomBustBlog to the privately funded companies in the Bitcoin space. See my post from yesterday for much of the reason why.

As clearly predicted yesterday, the better funded of the payment processors will initiate a pricing blood bath they'd likely kill for...

From PayPal's subsite on Mass Payments:

Paypal Mass Pay Site Screenshot

 As you can see, PayPal has already imbued its service with much of the attributes that are being offered by the Bitcoin payment processors. They also have a material advantage as of right now, a massive installed base.

I also cannot emphasize enough how damaging the all too necessary customer service option is to margins. You see, the problem is most service companies don't put enough into customer service and handholding of the customer. From an optimal perspective, this should actually be part of the marketing and sales process, but it's often either non-existent or implemented as an after thought after enough customers start bitching and complaining, or worse yet (and likely most often the case) leaving!

As a company with mature management, it appears as if PayPal is trying to head this off at the pass as it attempts to change consumer behavior and prod them into adopting its new electronic currency payment system...

Paypal Mass Pay Site Support Screenshot

 Now, let's compare PayPal to the newly funded Bitcoin payment processors...

Bitpay

Funding Rounds (3) - $32.50M

- See more at: http://www.crunchbase.com/organization/bitpay#sthash.yvlqpNtr.dpufBitpay prices

An interesting departure from the per transaction/fee model, Bitpay implemented a subscription system which benefits those customers who perform a large quantity of relatively small transactions moreso than those who process large orders.

I calculate Bitpay's most recent $30 million series A round to have been at around 9.2x sales, valuing the company at $160 million. This is a guestimate, of course, since I do not have access to internal numbers.  

Next we have Coinbase...

Funding Rounds (3) - $31.70M

- See more at: http://www.crunchbase.com/organization/coinbase#sthash.CD8IPTp6.dpufCoinbase 

There's also Circle, founded by Mr. Allaire of Coldfusion fame (sold to Adobe Systems).

Funding Rounds (2) - $26M 

- See more at: http://www.crunchbase.com/organization/nfc-direct#sthash.dd0DaxHc.dpuf

Circle has not publicly launched yet but promises to bring a new level of simplicity and user-friendliness to the bitcoin payment ecosystem, concentrating more on a banking paradigm then the technical bent that bitcoin is known to represent. This is all you need ot know about the Circle business model as it relates to this discussion of impending margin compression...

Circle

Free=Margin Compression!

Let's see how this plays out for customers. The most lucrative segments for this industry is the SME (small and medium business enterprises) who process anywhere between 10 and 1,000 transactions per month. Why? Because there are simply more SMEs than there are big companies in the world. Let's see what the two biggest bitcoin processors look like when stacked up against PayPal's Mass Pay product for the SME market...

image019

image027image028image029

Of course, the Bitcoin transactions are likely a loss leader for additional, value added services for many companies in the not too distant future. As a matter of fact, I feel that the payment space will quickly become commoditized by Bitcoin technology - forcing these companies and many more (I'm talking about you Mastercard, Visa and Western Union) to innovate and offer significantly and materially better value for the buck.

Imagine what this competitive landscape will look like when Mastercard, Visa, American Express, Discover and Western Union jump into the fray. Of course, before that a much greater portion of the VC and private equity community will wake up and realize the opportunity in Bitcoin to pour more cash into it than sugar into a Bubble gum machine (emphasis on "Bubble"). The key is to get in early, and get in right. But how does one do that and where will this tale of uber margin compression end?

Well, the research report from which this info is being prepared will be offered to accredited and instituional investors starting next week, at least those who have an interest in UltraCoin. 

My next article on this topic will explicitly illustrate how UltraCoin can assist ALL players (that's right, including PayPal, Bitpay, Circle, Coinbase, Mastercard, Visa, American Express, Discover and Western Union) as well as their direct customers, in climbing up both the food chain and the value proposition ladder - thus rapidly repairing the margin compression damage they are about to bring upon thier business models.

 image014

 

My Twitter Updates

ReggieMiddleton VeADIR access options have exploded! You can now log in or create a new account through nearly any popular browser… https://t.co/Mr4D7NM8uL
Saturday, 15 June 2019 13:34
From TweetDeck
ReggieMiddleton @eddiejRobo Veritaseum is much, much cheaper than any source available publicly online. Currently, we're selling go… https://t.co/lhqv4UeF6c
Sunday, 09 June 2019 23:17
From TweetDeck
ReggieMiddleton RT @joshthedavid: How France keeps a grip on Africa. This is why @ReggieMiddleton is important. https://t.co/UhzVcFxfdK
Friday, 07 June 2019 20:32
ReggieMiddleton VeADIR: most comprehensive dashboard in Blockchain (Bloomberg-ish, https://t.co/QbrxPp69FE) has dropped price of d… https://t.co/d115i8QREP
Tuesday, 04 June 2019 13:54
From TweetDeck
ReggieMiddleton @kai_trading That is basically what we are doing now. The model has evolved over time, but still remains true. Tokenization of everything!
Friday, 31 May 2019 15:00

Right add

Newsletter

Tell Us What You Think

Which forensic research are you most apt to buy?
Right add (2)

Contact

Veritaseum

1-718-407-4751

info@veritaseum.com