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It’s been almost 10 years in the making, but the fate of one of Europe’s most important financial institutions appears to be sealed.

After a hard-hitting sequence of scandals, poor decisions, and unfortunate events,Visual Capitalist’s Jeff Desjardins notes that Frankfurt-based Deutsche Bank shares are now down -48% on the year to $12.60, which is a record-setting low.

Even more stunning is the long-term view of the German institution’s downward spiral.

With a modest $15.8 billion in market capitalization, shares of the 147-year-old company now trade for a paltry 8% of its peak price in May 2007.

Courtesy of: Visual Capitalist

THE BEGINNING OF THE END

If the deaths of Lehman Brothers and Bear Stearns were quick and painless, the coming demise of Deutsche Bank has been long, drawn out, and painful.

In recent times, Deutsche Bank’s investment banking division has been among the largest in the world, comparable in size to Goldman Sachs, JP Morgan, Bank of America, and Citigroup. However, unlike those other names, Deutsche Bank has been walking wounded since the Financial Crisis, and the German bank has never been able to fully recover.

It’s ironic, because in 2009, the company’s CEO Josef Ackermann boldly proclaimed that Deutsche Bank had plenty of capital, and that it was weathering the crisis better than its competitors.

It turned out, however, that the bank was actually hiding $12 billion in losses to avoid a government bailout. Meanwhile, much of the money the bank did make during this turbulent time in the markets stemmed from the manipulation of Libor rates. Those “wins” were short-lived, since the eventual fine to end the Libor probe would be a record-setting $2.5 billion.

The bank finally had to admit that it actually needed more capital.

In 2013, it raised €3 billion with a rights issue, claiming that no additional funds would be needed. Then in 2014 the bank head-scratchingly proceeded to raise €1.5 billion, and after that, another €8 billion.

…click on the above link to read the rest of the article…

Chinese Bankruptcies Surge More Than 50% In Q1; Worse To Come

June 24, 2016

Chinese Bankruptcies Surge More Than 50% In Q1; Worse To Come

Two months ago, when looking at the soaring number of bond issuance cancellations and postponements as calculated by BofA, we commented that it was only a matter of time before the long overdue tide of corporate defaults, held by for so many years by the Chinese government which would do anything to delay the inevitable, was about to be unleashed.

This prediction has indeed been validated and as the FT reports overnight, Chinese bankruptcies have surged this year “as the government uses the legal system to deal with “zombie” companies and reduce industrial overcapacity as part of a broader effort to restructure the economy.” In just the first quarter of 2016, Chinese courts have accepted 1,028 bankruptcy cases, up a whopping 52.5% from a year earlier, according to the Supreme People’s Court. Just under 20,000 cases were accepted in total between 2008 and 2015.

This is surprising because while China’s legislature had approved a modern bankruptcy law in 2007 it had barely been used for years, with debt disputes often handled through backroom negotiations involving local governments. “Bankruptcy isn’t just about creditor-borrower relations. It also touches on social issues like unemployment,” said Wang Xinxin, director of the bankruptcy research centre at Renmin University law school in Beijing. “For a long time many local courts weren’t willing to accept them, or local governments didn’t let them accept.”

However, following the dramatic collapse of global commodity prices, which as we showed last October meant that more than half of local companies could not afford to even make one coupon payment with cash from operations, Beijing had no choice but to throw in the towel. And as the FT adds, “bankruptcy courts have been recruited into China’s drive for “supply-side reform”, which centres on reduction of overcapacity in sectors such as steel, coal and cement.”

…click on the above link to read the rest of the article…

Federal Regulators Accuse Banks Of Not Having Credible Crisis Plans, Would Need Another Bailout

April 13, 2016

Federal Regulators Accuse Banks Of Not Having Credible Crisis Plans, Would Need Another Bailout

Perhaps the biggest farce to result from the Dodd-Frank legislation designed to “rein in” banks was the ridiculous notion of “living wills” – a concept that makes zero sense in an environment where the failure of even one bank assures a systemic crisis and could – as the Lehman financial crisis showed – lead to the collapse of all other interlinked financial institutions.

Which is why we were not surprised to read this morning that federal regulators announced that five out of eight of the biggest U.S. banks do not have credible plans for winding down operations during a crisis without the help of public money.

Which is precisely the point: now that the precedent has been set and banks know they can rely on the generosity of taxpayers (with the blessing of legislators) why should they even bother planning; they know very well that if just one bank fails, all would face collapse, and the only recourse would be trillions more in taxpayer aid.

As Reuters writes, the “living wills” that the Federal Reserve and Federal Deposit Insurance Corporation jointly agreed were not credible came from Bank of America, Bank of New York Mellon, J.P. Morgan Chase, State Street, Wells Fargo. What is more impressive is that the Fed and FDIC found any living will to be credible.

Also amusing: it was only the FDIC which alone determined that the plan submitted by Goldman Sachs was not credible while the Goldman-dominated Fed gave its blessing; alternatively, the Federal Reserve Board on its own found that the plan of Morgan Stanley – Goldman’s arch rival in investment banking – not credible. Citigroup’s living will did pass, but the regulators noted it had “shortcomings.”

…click on the above link to read the rest of the article…

Japan Prints Additional ¥10,000 Bills As People Scramble To Stash Away Cash

April 7, 2016

Japan Prints Additional ¥10,000 Bills As People Scramble To Stash Away Cash

Long before negative interest rates shifted from the monetary twilight zone into the mainstream (with some 30% of global government bonds now trading with a subzero yield), one organization wrote a report warning about the dangers of NIRP. The NY Fed. Back in 2012, NY Fed staffers wrote “If Interest Rates Go Negative . . . Or, Be Careful What You Wish For” it warned “if rates go negative, the U.S. Treasury Department’s Bureau of Engraving and Printing will likely be called upon to print a lot more currency as individuals and small businesses substitute cash for at least some of their bank balances.”

Then, last October, Bank of America looked at the savings rates across European nations which had implemented NIRP and found something disturbing: instead of achieving what what central banks had expected, it was leading to precisely the opposite outcome: “household savings rates have also risen. For Switzerland and Sweden this appears to have happened at the tail end of 2013 (before the oil price decline). As the BIS have highlighted, ultra-low rates may perversely be driving a greater propensity for consumers to save as retirement income becomes more uncertain.”

The evidence:

Which was to be expected by most people exhibiting common sense: NIRP by definition is deflationary, and as such as prompts consumers to delay consumption, and as a result to save as much as possible, if not in the banks where their savings may soon be taxed under NIRP regimes, then in cash.

And nowhere if the failure of NIRP – and unconventional monetary policy in general – more evident than what just happened in Japan, where according to Japan Times, the Finance Ministry plans to increase the number of ¥10,000 bills in circulation, amid signs that more people are hoarding cash.

…click on the above link to read the rest of the article…

Was There A Run On The Bank? JPM Caps Some ATM Withdrawals

April 4, 2016

Was There A Run On The Bank? JPM Caps Some ATM Withdrawals

Under the auspices of “protecting clients from criminal activity,” JPMorgan Chase has decided to impose capital controls on . As WSJ reports, following the bank’s ATM modification to enable $100-bills to be dispensed with no limit, some customers started pulling out tens of thousands of dollars at a time. This apparent bank run has prompted Jamie Dimon to cap ATM withdrawals at $1,000 per card daily for non-customers.

Most large U.S. banks, including Chase, Bank of America Corp., Citigroup Inc. and Wells Fargo & Co. have been rolling out new ATMs, sometimes known as eATMs, which perform more services akin to tellers. That includes allowing customers to withdraw different dollar denominations than the usual $20, typically ranging from $1 to $100.

The efforts run counter to recent calls to phase out large bills such as the $100 bill or the €500 note ($569) to discourage corruption while putting up hurdles for tax evaders, terrorists, drug dealers and human traffickers.

The Wall Street Journal reported in February that the European Central Bank was considering eliminating its highest paper currency denomination, the €500 note. Former U.S. Treasury Secretary Lawrence H. Summers also has called for an agreement by monetary authorities to stop issuing notes worth more than $50 or $100.

This move appears to have backfired and created a ‘run’ of sorts on Chase…

A funny thing happened as J.P. Morgan Chase & Co. modified its ATMs to dispense hundred-dollar bills with no limit: Some customers started pulling out tens of thousands of dollars at a time.

While it was changing to newer ATM technology, J.P. Morgan found that some customers of banks in countries such as Russia and Ukraine had used Chase ATMs to withdraw tens of thousands of dollars in a single day, people familiar with the situation said. Chase had instances of people withdrawing $20,000 in one transaction, they added.

…click on the above link to read the rest of the article…

The Global Run On Physical Cash Has Begun: Why It Pays To Panic First

February 28, 2016

The Global Run On Physical Cash Has Begun: Why It Pays To Panic First

Back in August 2012, when negative interest rates were still merely viewed as sheer monetary lunacy instead of pervasive global monetary reality that has pushed over $6 trillion in global bonds into negative yield territory, the NY Fed mused hypothetically about negative rates and wrote “Be Careful What You Wish For” saying that “if rates go negative, the U.S. Treasury Department’s Bureau of Engraving and Printing will likely be called upon to print a lot more currency as individuals and small businesses substitute cash for at least some of their bank balances.”

Well, maybe not… especially if physical currency is gradually phased out in favor of some digital currency “equivalent” as so many “erudite economists” and corporate media have suggested recently, for the simple reason that in a world of negative rates, physical currency – just like physical gold – provides a convenient loophole to the financial repression of keeping one’s savings in digital form in a bank where said savings are taxed at -0.1%, or -1% or -10% or more per year by a central bank and government both hoping to force consumers to spend instead of save.

For now cash is still legal, and NIRP – while a reality for the banks – has yet to be fully passed on to depositors.

The bigger problem is that in all countries that have launched NIRP, instead of forcing spending precisely the opposite has happened: as we showed last October, when Bank of America looked at savings patterns in European nations with NIRP, instead of facilitating spending, what has happened is precisely the opposite: “as the BIS have highlighted, ultra-low rates may perversely be driving a greater propensity for consumers to save as retirement income becomes more uncertain.”

…click on the above link to read the rest of the article…

Larry Summers Launches The War On Paper Money: “It’s Time To Kill The $100 Bill”

February 16, 2016

Larry Summers Launches The War On Paper Money: “It’s Time To Kill The $100 Bill”

Yesterday we reported that the ECB has begun contemplating the death of the €500 EURO note, a fate which is now virtually assured for the one banknote which not only makes up 30% of the total European paper currency in circulation by value, but provides the best, most cost-efficient alternative (in terms of sheer bulk and storage costs) to Europe’s tax on money known as NIRP.

That also explains why Mario Draghi is so intent on eradicating it first, then the €200 bill, then the €100 bill, and so on.

We also noted that according to a Bank of America analysis, the scrapping of the largest denominated European note “would be negative for the currency”, to which we said that BofA is right, unless of course, in this global race to the bottom, first the SNB “scraps” the CHF1000 bill, and then the Federal Reserve follows suit and listens to Harvard “scholar” and former Standard Chartered CEO Peter Sands who just last week said the US should ban the $100 note as it would “deter tax evasion, financial crime, terrorism and corruption.”

Well, not even 24 hours later, and another Harvard “scholar” and Fed chairman wannabe, Larry Summers, has just released an oped in the left-leaning Amazon Washington Post, titled “It’s time to kill the $100 bill” in which he makes it clear that the pursuit of paper money is only just starting. Not surprisingly, just like in Europe, the argument is that killing the Benjamins would somehow eradicate crime, saying that “a moratorium on printing new high denomination notes would make the world a better place.”

Yes, for central bankers, as all this modest proposal will do is make it that much easier to unleash NIRP, because recall that of the $1.4 trillion in total U.S. currency in circulation, $1.1 trillion is in the form of $100 bills.

…click on the above link to read the rest of the article…

The War On Paper Currency Begins: ECB Votes To “Scrap” 500 Euro Bill

February 15, 2016

The War On Paper Currency Begins: ECB Votes To “Scrap” 500 Euro Bill

Update: in case there was any doubt about the ECB’s true intentions, we just got the official “denial”:

DRAGHI: ANY ECB ACTION ON EU500 NOTE IS NOT ABOUT REDUCING CASH

Translation: the ECB action is only about reducing physical cash, some 30% of it to be specific.

* * *

The first shot in the global war on cash was just fired, by none other than the ECB, which moments ago Handelsblatt reported…

ECB wants to stop issuing 500 Euro bills – our exclusive https://t.co/LLe2qyhBjK

— Daniel Schäfer (@schaeferdaniel) February 15, 2016

… and Bloomberg confirmed – ECB COUNCIL VOTES TO SCRAP EU500 NOTE: HANDELSBLATT – has voted to scrap the second highest denominated European bank note in circulation:

… after the CHF 1000 note.

So what, big deal, eliminate it. The people will still have 5, 10, 20, 50, 100 and 200 euro bills right.

As we wrote just one week ago, the answer is not that simple at all. Recall that the €500 note is the second highest currency denomination in G10, after the CHF1,000 note. More importantly, the total value of €500 notes in circulation amounts to €306.8bn and has been rising as shown in this BofA chart:

Furthermore, as a share of the value of total euros in circulation, the €500 note is the second-highest, after the €50 note.

…click on the above link to read the rest of the article…

Canadian Pacific Warns Of “Tremendous Pressure”, “Strong Headwinds” For Economy

January 21, 2016

Canadian Pacific Warns Of “Tremendous Pressure”, “Strong Headwinds” For Economy

One week ago, when we explained why “Things Just Went From Bad To Worse For U.S. Railroads,” we said that “the rail industry is about to be slammed with a dramatic repricing, one which is only the start and the longer oil prices remain at these depressed levels, the lower the rents will drop (think Baltic Dry but on land), until soon most rails will lose money on every trip and will follow the shale companies into a race to the bottom, where “they make up for its with volume.”

Today, none other than railroad titan Canadian Pacific (whose stock is down 4% despite the torrid surge higher in risk assets) confirmed that not only are things “worse”, but the bottom may have fallen out from what until recently was one of Warren Buffett’s favorite industries, after missing on both the top and bottom line, but especially during its conference call in which CEO Hunter Harrison admitted that he see “tremendous pressure” on the top line, and expects “challenging times” for revenue growth.

Then COO Keith Creel said that he expected volume in 2016 to be notably down from 2015, warns of strong headwinds for the US economy in the first half of 2016 and says CP is storing at least 600 locomotives in anticipation of better times.

Then the CFO also warned that compensation and benefit costs would be lower in the coming year.

Finally, the CEO warned that in addition to the already cut 7,000 jobs another 1,000 workers are about to “potentially” get pink slips.

Finally, and most ominously, CP warned that it sees delay in the Norfolk Southern deal timeline, and may change its strategy regarding the Norfolk Southern transaction.

We conclude with the warning issued by Bank of America one week ago:

…click on the above link to read the rest of the article…

The Fed’s Stunning Admission Of What Happens Next

January 17, 2016

The Fed’s Stunning Admission Of What Happens Next

Following an epic global stock rout, one which has wiped out trillions in market capitalization, it has rapidly become a consensus view (even by staunch Fed supporters such as the Nikkei Times) that the Fed committed a gross policy mistake by hiking rates on December 16, so much so that this week none other than former Fed president Kocherlakota openly mocked the Fed’s credibility when he pointed out the near record plunge in forward breakevens suggesting the market has called the Fed’s bluff on rising inflation.

All of this happened before JPM cut its Q4 GDP estimate from 1.0% to 0.1% in the quarter in which Yellen hiked.

To be sure, the dramatic reaction and outcome following the Fed’s “error” rate hike was predicted on this website on many occasions, most recently two weeks prior to the rate hike in “This Is What Happened The Last Time The Fed Hiked While The U.S. Was In Recession” when we demonstrated what would happen once the Fed unleashed the “Ghost of 1937.”

As we pointed out in early December, conveniently we have a great historical primer of what happened the last time the Fed hiked at a time when it misread the US economy, which was also at or below stall speed, and the Fed incorrectly assumed it was growing.

We are talking of course, about the infamous RRR-hike of 1936-1937, which took place smack in the middle of the Great Recession.

Here is what happened then, as we described previously in June.

[No episode is more comparable to what is about to happen] than what happened in the US in 1937, smack in the middle of the Great Depression.

…click on the above link to read the rest of the article…

Last Bubble Standing

January 14, 2016

Last Bubble Standing

EM debt bubble… emaciated, FX Carry… crucified, Crude…crushed, High yield bonds… burst, Chinese equities… blown, Trannies… trounced, Small Caps… slammed, Biotechs… busted, and FANGs finally FUBAR!But there is one big (very big) bubble left in the world that no one is talking about, and a rather large liquidity-busting pin beckons…

In May 2015 we first explained exactly why China was blowing its equity market bubble. Simply put, with more “equity,” companies were better able to refinance/roll (note, no interest in debt reduction or deleveraging) their record-breaking mountain of debt and avoid the systemic collapse that is utterly imminent for just a few more months/years.

Now that the equity market bubble has burst, Chinese authorities have chased investors into another bubble.

In October 2015, we warned of the relative risk building in the Chinese corporate bond market.

As the rout in Chinese stocks this year erased $5 trillion of value, investors fled for safety in the nation’s red-hot corporate bond market. They may have just moved from one bubble to another.

Into Chinese corporate bonds…

As we detailed just two months ago, this historic bond bubble is paradoxical for the simple reason that China’s credit fundamentals have never been worse, and as we further showed, as a result of the ongoing collapse in commodity prices (which today’s Chinese rate and RRR-cut will have absolutely no impact on), more than half of commodity companies can’t generate the cash required to even pay their interest, a number which drops to “only” a quarter when expanded to all industries.

“The equity rout merely reflects worries about China’s economy, while a bond market crash would mean the worries have become a reality as corporate debts go unpaid,” said Xia Le, the chief economist for Asia at Banco Bilbao. “A Chinese credit collapse would also likely spark a more significant selloff in emerging-market assets.”

…click on the above link to read the rest of the article…

Bank of America Explains How Central Banks Rigged And Manipulated The Market

January 3, 2016

Bank of America Explains How Central Banks Rigged And Manipulated The Market

It used to be the provenance of “conspiracy theorists” – alleging that central banks have manipulated, rigged or otherwise broken the “efficient market.” That is no longer the case.

As we previously showed, now even the big banks admit it.

However, since for some unknown reason the broader media has yet to catch on to this concept which exonerates the “tinfoil” crowd and makes a mockery of the “bull market” of the past 7 years while posing some very troubling questions about how it all ends, here again is Bank of America explaining not only how “central banks have unfairly inflated asset prices” with the “market aware the price of risk is not correct”, but why the biggest risk to the financial system is a “loss of confidence in this omnipotent CB put”

And the cherry on top comes from JPMorgan which declares “Mission accomplished – QE drives up equity valuations”

Sources: “Fragility is the new volatility” by Benjamin Fowler, Global Equity Derivatives Rsch, Bank of America, December 9, 2015; “Eye on the Market Outlook 2016” by J.P.Morgan Private Bank

What Secret Do Global Banks Know about Chinese Banks?

December 30, 2015

What Secret Do Global Banks Know about Chinese Banks?

They’re dumping their stakes.

“Now is the right time for us to sell this investment,” announced Deutsche Bank’s newish co-CEO John Cryan on Monday after the long Christmas weekend when no one was supposed to pay attention.

It was how Cryan justified the deal to sell Deutsche’s entire 19.99% stake in Hua Xia Bank in China to Chinese insurer PICC Property and Casualty. He couched the deal in terms of executing Deutsche’s “strategic agenda”: boosting capital ratios to prop up the balance sheet.

Deutsche isn’t the first Western bank to bail out of banks in China where regulators limit foreign ownership stakes to a maximum of 20%, which brings some complications.

Goldman Sachs sold its stake in Industrial and Commercial Bank of China in 2013. Bank of America Merrill Lynch bailed out of its stake in China Construction Bank in a series of deals. BBVA, Spain’s second largest bank, has been cutting its stake in China Citic Bank from about 15% in 2013 down to 4.7% now, and that remainder appears to be earmarked for sale as well. Other banks are also likely to pick up their marbles and go, such as Standard Chartered, with its stake in Agricultural Bank of China.

Like Deutsche, they couched those deals in terms of boosting capital ratios and balance sheets.

And Deutsche could use some balance sheet repair. One of the largest and most leveraged global banks, it has been tangled up for years in a long list of scandals, court cases, and multi-billion-dollar settlements. Recently it suspended senior staff in Russia after suspecting they’d assisted in laundering money for sanctioned buddies of President Vladimir Putin. We were all shocked.

…click on the above link to read the rest of the article…

Even The Big Banks Now Admit It: “This Is How The Fed’s ‘Massive Manipulation’ Broke The Market”

December 28, 2015

Even The Big Banks Now Admit It: “This Is How The Fed’s ‘Massive Manipulation’ Broke The Market”

Raise your hand if this sounds familiar: markets are calm, things are stable, stocks are levitating on virtually no volume… and suddenly there is a price ‘air pocket’ as one or more assets unexpectedly plunge in what has become a now daily “flash crash” du jour, traders panic, unable to frontrun orderly traffic HFTs immediately shut down, and all hell breaks loose.

We expect everyone to have gone through this “local tail” event scenario at least once and likely many times, one which we predicted would become the norm back in 2009, and one which has, as of 2015, become the norm.

Thank the Fed.

But don’t take it from a “fringe, tinfoil hat, conspiracy theory” website which has been repeating this for so many years we have to dig deeper with every passing day to keep ourselves amused at this farce: here is Bank of America’s head of global equity derivatives research, Benjamin Bowler, with a piece slamming the massively manipulated “market” that 7 years of global central bank intervention has created, and a simple schematic which demonstrates just how broken everything is, and why one should expect many, many more such “local tail” freakouts in the future.

From Bank of America

Central bank’s risk manipulation well explains local tails

A good way to explain why we have seen local tail risks arise so frequently since central banks began to heavily manipulate asset prices is with the following analogy, illustrated in Exhibit 1. Essentially central banks, by unfairly inflating asset prices have compressed risk like a spring to unfairly tight levels. Unfortunately, the market is aware the price of risk is not correct, but they can’t fight it, and everyone is forced to crowd into the same trade. By manipulating markets they have also reduced investors’ inherent conviction by rendering fundamentals less relevant.

…click on the above link to read the rest of the article…

The Credit Crunch Is Back: Banks Scramble To Collateralize Loans To Record Levels

December 27, 2015

The Credit Crunch Is Back: Banks Scramble To Collateralize Loans To Record Levels

One of the biggest quandaries of this cycle for the US economy has been the amount and growth of commercial bank loans. Virtually non-existent for the first three years of the centrally-planned new normal, something changed in 2012 at which point US bank loans, led by Commercial and Industrial or C&I lending growing at a double-digit pop, started to rise at an impressive pace, asking many to wonder: maybe the biggest driver for a sustainable economic recovery is in fact present, because where there is loan demand, there is velocity of money.

A few years later, as the loan growth persisted with virtually no flow through to GDP growth, we – and others – wondered: we know there is a “source of funds”, but what about the “use of funds” – how can banks be creating tens of billions in loans if virtually nothing was ending up in the broader economy?

The first flashing red flag appeared last July, when we reported that companies were using secured bank debt to repurchase stock: a stunning, foolhardy development, comparable to taking out a mortgage on one’s house and using the proceeds to buy deep out of the money calls on the S&P 500. This is what the FT said at the time:

For the top 25 US commercial banks by assets, C & I lending grew by 10.5 per cent in the quarter to June 25 from the previous quarter, according to annualised weekly data from the Federal Reserve.

This type of lending is an important source of business for the largest US banks, representing about a fifth of all loans made by the likes of Bank of America, JPMorgan Chase and Wells Fargo, according to Citigroup research. While low interest rates have made business lending less lucrative, the relationships it forges open doors for the banks to sell other services such as treasury management, hedging and leasing.

…click on the above link to read the rest of the article…

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