Monday, February 8, 2016

Europe's Big Banks Are In Grave Danger..........THE WIND IS PICKING UP, A NASTY STORM IS COMING!

Europe's Big Banks Are In Grave Danger

SOME of Europe's biggest banks are on the brink of a crisis that resembles the 2008 meltdown as fears over the global economy escalate.

Deutsche Bank, Credit Suisse, Santander, Barclays and RBS are among the stocks that are falling sharply sending shockwaves through the financial world.

At the height of the financial disaster in 2008, the Government was forced to step in and rescue Lloyds Banks and RBS from liquidation, while the European Central Bank gave huge bailouts to Spain, Greece, Portugal and Italy.

Last month, the head of the European Central Bank Mario Draghi raised expectations that it could undergo yet more Quantitative Easing in March - in effect printing billions of pounds worth of money - in the face of ongoing economic fears.  DOING MORE OF THE SAME WILL ONLY MAKE IT WORSE. CENTRAL BANKS ARE THE PROBLEM, NOT THE SOLUTION!

France last month declared a state of economic crisis adding to worries about the stability of the eurozone.

Regulations now require banks in Europe to hold more cash as a buffer against market shocks, but balance sheets haven't been cleaned up and negative interest rates are hitting these firms hard.

You look at the long-term charts of these banks, and this looks very terrifying indeed. Panic is certainly spreading into other sectors.

Is Deutsche Bank Signaling A New Banking Crisis?

Deutsche Bank is now trading at less than 50% of the share price it was trading at in July last year. See the chart below.

And no, the market isn't wrong about this one. !!!!!

The shit is really hitting the fan at Deutsche Bank after having to confess another multi-billion euro loss in 2015 on the back of some hefty litigation charges (which are expected to persist in the future). And to add to all the gloom and doom, even Deutsche Bank's CEO said he didn't really want to be there . Talk about being pessimistic!

The problems at Deutsche Bank could have a huge negative impact on the world economy. 

Deutsche has a huge exposure to the derivatives market, and it's impossible, and we mean LITERALLY impossible for any government to bail out Deutsche Bank should things go terribly wrong. Keep in mind the exposure of Deutsche Bank to its derivatives portfolio which is almost 20 times (yes, twenty times) the GDP of Germany and roughly 5 times the GDP of the entire Eurozone! And to put things in perspective, the TOTAL government debt of the US government is less than 1/3rd of Deutsche Bank's exposure.

Oops.

Indeed, oops. And the worst part of all of this, is the fact the problems at Deutsche Bank are slowly penetrating the other major financial institutions. Something BIG is rumbling in Europe and it is a symptom of a very deadly disease. 

Deutsche Bank is leading the pack towards another huge financial crisis. The CDS spreads of literally ALL major European banks have posted huge changes in the past 3-4 weeks, and if you throw in the most recent messages from Citibank, stating the world economy is trapped in a death spiral, you might want to think about protecting yourself against yet another financial meltdown and this one will be much worse than the previous versions.



Shares of scandal-plagued, litigation-hammered, loss-ridden Deutsche Bank, one of the largest and least capitalized megabanks in the world are being hammered. Investors are fidgeting in their seats, cursor on the sell-button.

All these losses, write-offs, and fines have eaten into Deutsche Bank's already low capital buffer. To prop up Tier 1 capital, Deutsche Bank had issued the equivalent of €4.6 billion (about $5 billion) in "contingent convertible bonds," spread over four issues, two in dollars, one in euros, and one in pounds – something for everyone.

These CoCo bonds, as they're called, are special: The bank can call them after a certain date but doesn't have to redeem them; annual coupon payments are contingent on the bank's ability to stay above certain cash and capital requirements, as specified by German and European banking regulations; and investors cannot call a default if the bank fails to make the coupon payment.

For example, its 6% euro CoCo bonds had been beaten down to a record low of 85.5 cents on the euro by January 21, from a 52-week high in April last year of 102.11, and down from their peak in early 2014 of 104, shortly after they'd been issued.

Despite the risks, yield-desperate investors eagerly gobbled them up. Now Deutsche Bank is just a hair away from breaching the limits. And there's a lot of nail-biting.

"They're just too close to the wire," Mark Holman, CEO of TwentyFour Asset Management in London, told Bloomberg at the time. "They said they were going to pay today, but they could just as easily have said they were going to skip. It's not worth the risk."

"The bank is restructuring, the board aren't taking any bonuses, those must be clues as to the state of the bank," he said. "They're one big fine away from having to skip a coupon."

And then the CoCo bonds plunged. On Friday, the 6% bonds hit a new low of 85.26 cents on the dollar. And according to Deutsche Börse data, they dropped again to close at a record low of 84.11.

They're down 17.6% from their 52-week high in April and 19.1% from their high in early 2014.

Last fall, the bank announced that it wants to issue additional CoCo bonds for up to €4 billion over the years until 2020. Market expectations were for up to €7 billion as the bank wants to raise its capital buffer without asking beleaguered stockholders to step up to the plate again. So a lot of investor confidence is required to make this happen.

But investor confidence is fleeing. With its current CoCo bonds getting kicked around the gutter, it is hard to imagine that Deutsche Bank could issue more of them. If the beleaguered stockholders are again asked to fund the bank's shenanigans, it would crush shares further. Given the new European banking regulations, the previously so convenient taxpayer bailouts are now somewhat less convenient. So investors are being handed the tab in small-ish increments, perhaps for years to come, rather than all at once, which would be the case if Deutsche Bank toppled.

No comments:

Post a Comment