Monday, 3 October 2016

Deutsche Bank in numbers

Deutsche Bank, market cap $18 bn has been hit with a fine for $14 bn from US Justice Dept for its role in the 2007/8 subprime financial crisis. This poses an existential threat to the bank and its share price has dropped from around €30 a year ago to €10 now.

When German Chancellor Angela Merkel was asked if the German government would bail out the bank she mumbled something inaudible.

Her problem is twofold: first, she is already massively unpopular for letting in a million refugees, she cannot afford the extra opprobrium flinging taxpayer cash at a bank would bring, and second, she does not have that kind of money anyway. Deutsche Bank has assets equivalent to 50% of German GDP but liabilities four times the German economy! Germany simply cannot save the bank with money.

All this makes Deutsche a way bigger deal than Lehman Brothers and therefore far too big to fail. This is good news for the bank and its 100,000 employees worldwide. The other piece of good news is that the Germans have the Yanks over a financial barrel - a few years ago the Germans asked for the few hundred tons of gold they were storing in Fort Knox back and the Americans were like, "Oh crap!"

The Germans wisely downplayed the situation which now gives them leverage: expect the $14 bn fine to evaporate like morning dew - already they are saying maybe we only meant $5 bn and easy payment terms can surely be arranged, and the fine can be offset against tax and before you know it - all gone.

Then as confidence returns the market cap shoots up and the whole situation begins to look quite minor really. Disaster averted!

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