I Don't See How Germany
Can Contain the Deutsche Bank Collapse, by Phoenix Capital, 9/30/16
Let’s talk
about Deutsche Bank (DB). Deutsche Bank is the 11th largest bank in the world.
It has assets of $1.8 trillion and over ~$60 trillion in derivatives on its
books.
From a balance
sheet perspective, DB’s balance sheet is 50% the size of Germany’s GDP. By way
of comparison, imagine if JP Morgan was a $9 TRILLION bank. That’s effectively
DB’s status in Germany.
However, it’s
DB’s derivative book that is the real problem as far as the markets are
concerned. As I mentioned before, DB has ~$60 trillion in derivatives. And
unlike the other derivatives giant of the financial world (JP Morgan with $52
trillion in derivatives), DB is based in Europe.
What are the
differences? Europe is where Negative Interest Rate Policy (NIRP) Brexit and
exposure to a banking system that is entirely too laden with debt has proven a
disastrous cocktail.
What precisely
has hit DB remains to be seen. But
something happened in the first two weeks of September that triggered a market
meltdown. DB shares have fallen straight down a total of 27% since that time.
Now we are in
full-blown panic mode. This bank is too big to bailout and too big to bail-in.
Moreover that massive derivatives book connects DB to over 200 financial
entities. Unwinding it will be catastrophic.
This could very
well lead to a 2008 type Crash. To be blunt, I don't see how Germany or the ECB
can contain it.
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