The Snowflake Before The Avalanche!
Posted: Mon Oct 03, 2016 6:21 pm
KEITH FITZ-GERALD, Chief Investment Strategist posted....
The U.S. Department of Justice announced it's seeking a
record $14 billion penalty against Deutsche Bank AG USA
(NYSE: DB) in relation to mortgage securities fraud in
the run up to the global financial crisis that's roiled
markets since 2007. Another naughty bank, another big
fine. Regulators quietly charge banks and financial
institutions with rules and policy violations all the
time. Unbeknownst to most investors, the majority of
infractions are quietly settled after a bunch of legal
wrangling, without causing so much as a blip in the
headlines.
So What's The Big Deal?
Deutsche Bank is facing a $14 billion fine at a time when
the bank has "litigation reserves" of just €5.5 billion
($6.17 billion). It simply doesn't have the cash on hand
to pay just the penalties sought by just U.S. regulators
as it stands today. The bank is actually fighting more
than 7,000 ongoing legal cases, according to The Guardian.
As bad as those problems are, they pale in comparison to
the problem no one's talking about…
The $42 Trillion Anvil Hanging Over the Markets!
Even by Deutsche Bank's standards, this has been a bad week.
The company has lost one-fifth of its market capitalization
in less than two weeks, and if my calculations are correct,
roughly half its value since the beginning of 2016. Again,
you may ask, "So, what's the big deal? Stocks tank all the
time – even banks." Well, this isn't just a big deal, it's
THE big deal. I'll show you why. It doesn't advertise it,
but Deutsche Bank has more than $42 trillion-with-a-T in
derivatives on its books. That's nearly 14 times the size
of Germany's $3.3 trillion economy, and much more than twice
the size of the European Union's $16.3 trillion GDP. To
put this in perspective, that's roughly 20 times the
derivatives exposure that Lehman Brothers had… and we all
know how that ended. Put bluntly, Deutsche Bank doesn't
have the cash to settle its own legal troubles, let alone
any "surprises" that might come its way. Surprises like
the one that caught markets this week. This weekend,
speaking in response to the Justice Department's $14
billion fine and questions over the bank's ability to
pay, German Chancellor Angela "Madame No" Merkel apparently
said emphatically that there will be no bailouts when it
comes to Deutsche Bank, according to Focus magazine. If
Merkel sticks to her guns and lets Deutsche Bank fail, her
actions will make it virtually impossible for the world's
central bankers and their political masters not to do the
same with other big banks. The way I see it, she’s
singlehandedly put the world’s entire financial system
at risk. Not only that, but she’s potentially burned the
euro, too. If Deutsche Bank goes, then Italian, Spanish,
and French banks go next. Then EU and U.S. banks will go!
The U.S. Department of Justice announced it's seeking a
record $14 billion penalty against Deutsche Bank AG USA
(NYSE: DB) in relation to mortgage securities fraud in
the run up to the global financial crisis that's roiled
markets since 2007. Another naughty bank, another big
fine. Regulators quietly charge banks and financial
institutions with rules and policy violations all the
time. Unbeknownst to most investors, the majority of
infractions are quietly settled after a bunch of legal
wrangling, without causing so much as a blip in the
headlines.
So What's The Big Deal?
Deutsche Bank is facing a $14 billion fine at a time when
the bank has "litigation reserves" of just €5.5 billion
($6.17 billion). It simply doesn't have the cash on hand
to pay just the penalties sought by just U.S. regulators
as it stands today. The bank is actually fighting more
than 7,000 ongoing legal cases, according to The Guardian.
As bad as those problems are, they pale in comparison to
the problem no one's talking about…
The $42 Trillion Anvil Hanging Over the Markets!
Even by Deutsche Bank's standards, this has been a bad week.
The company has lost one-fifth of its market capitalization
in less than two weeks, and if my calculations are correct,
roughly half its value since the beginning of 2016. Again,
you may ask, "So, what's the big deal? Stocks tank all the
time – even banks." Well, this isn't just a big deal, it's
THE big deal. I'll show you why. It doesn't advertise it,
but Deutsche Bank has more than $42 trillion-with-a-T in
derivatives on its books. That's nearly 14 times the size
of Germany's $3.3 trillion economy, and much more than twice
the size of the European Union's $16.3 trillion GDP. To
put this in perspective, that's roughly 20 times the
derivatives exposure that Lehman Brothers had… and we all
know how that ended. Put bluntly, Deutsche Bank doesn't
have the cash to settle its own legal troubles, let alone
any "surprises" that might come its way. Surprises like
the one that caught markets this week. This weekend,
speaking in response to the Justice Department's $14
billion fine and questions over the bank's ability to
pay, German Chancellor Angela "Madame No" Merkel apparently
said emphatically that there will be no bailouts when it
comes to Deutsche Bank, according to Focus magazine. If
Merkel sticks to her guns and lets Deutsche Bank fail, her
actions will make it virtually impossible for the world's
central bankers and their political masters not to do the
same with other big banks. The way I see it, she’s
singlehandedly put the world’s entire financial system
at risk. Not only that, but she’s potentially burned the
euro, too. If Deutsche Bank goes, then Italian, Spanish,
and French banks go next. Then EU and U.S. banks will go!