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Life Comes At Us Way Too Fast: One Banker’s Striking Explanation Why Nothing Makes Sense Any More

Life Comes At Us Way Too Fast: One Banker’s Striking Explanation Why Nothing Makes Sense Any More

Deutsche Bank’s postmodern philosopher-cum-credit strategist Aleksandar Kocic, who missed his true calling and instead of writing a sequel to Ulysses, Finnegan’s Wake or some other pomo stream of consciousness piece in the style of Lacan, Derrida, Deleuze (or even Foucault, Beckett, Ginsberg or Burroughs) was reduced, no pun intended, to predicting the future by describing the shift in yield curves or their “Greek” derivatives, has always had a way with words and he certainly uses them in his 2020 vol market outlook which can be summarized – and we use the term very loosely – as follows, in his own words: “We see last year as the final stage of an on-going process of vega collapse caused by the chronic lack of demand, disruption of the vol/leverage cycle, and activity of the Central Banks. At the core of these developments resides an emerging new perspective of uncertainty: On top of the structural drivers, low volatility levels, compressed vol risk premia, and flat vol forwards present an articulation of the flattening of horizons.”

Like we said, “a way with words.”

While it would be an injustice to the Deutsche Banker to summarize what he talks about in simplistic terms (the problem with post-modernism is that it can’t by definition be reduced, hence why nobody really reads it), what the Serbian strategist focuses on in broad strokes is the ongoing collapse of vega (and its deficit), which however may be approaching the “boundaries of vol decline” (i.e., the moment when the Fed loses control so to speak)…

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

After Unveiling ‘NotQE’, Fed Eases Liquidity Rules For Foreign Banks (Rescues Deutsche)

After Unveiling ‘NotQE’, Fed Eases Liquidity Rules For Foreign Banks (Rescues Deutsche)

Having cracked down on Deutsche Bank in the past, The Fed appears to be playing good-regulator/bad-regulator as The FT reports thatDeutsche is expected to benefit most from an imminent change in The Fed’s liquidity rules.

Specifically, US banking regulators have dropped an idea to subject local branches of foreign banks to tough new liquidity rules(forcing US branches of foreign banks to hold a minimum level of liquid assets to protect them from a cash crunch).

As The FT further details, people familiar with his thinking say Randal Quarles, the vice-chair for banking supervision at the Fed, accepts the banks’ argument that any liquidity rules on bank branches should only be imposed in conjunction with foreign regulators.

“Without some international agreement, we could have the situation where each country is trying to grab whatever isn’t nailed down if there is another scare.”

And Deutsche Bank benefits most (or rescued from major liquidity needs) since it has by far the largest assets in US branches…

Why would The Fed do this?

Simple, it cannot afford another Lehman-like move (or even the fear of one)…

Source: Bloomberg

Liquidity Crisis & the Pending European Banking Crisis

Liquidity Crisis & the Pending European Banking Crisis 

A lot of people have been writing in about the liquidity crisis and the banks with exposure to Deutsche Bank. This is clearly the European Banking Crisis we have been warning about. Most European (and Swiss) banks are having to overpay 30-40bps over libor. Even A+ rated banks are having to pay this premium.

Keep in mind that the Lehman and Bear crisis took place in the REPO market. This is why the crisis is appearing in a market most never hear about or see in interest rates. Those in Europe who have a position in cash, it may be better to have shares or a private sector bond or US Treasury. Given the policy in Europe of no bailouts, leaving cash sitting in your account could expose you to risk in the months ahead.

In all honesty, if this explodes in Europe, no-one will be safe and it will be pot-luck who’s cash you will be holding when it hits the fan. The Fed will bailout the US banks, but it cannot get involved in bailing out the European banks. This is becoming a clash in public policy which all stems from the FAILUREto have consolidated the debts. That refusal to consolidate, the terms demanded by Germany, also precludes bailouts where the money would cross borders. They want to pretend this is one happy family, but they insist on separate accounts.

As one European banker put it in a private conversation, it is almost a calm collapse. As I have REPEATEDLY warned, we are facing scenarios that nobody has ever seen before. The interconnectivity runs so deep, this clash in public policies can result in a serious crisis emanating from Europe.

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

The Ghost of Failed Banks Returns


Last week’s failure in the US repo market might have had something to do with Deutsche Bank’s disposal of its prime brokerage to BNP, bringing an unwelcome spotlight to the troubled bank and other foreign banks with prime brokerages in America. There are also worrying similarities between Germany’s Deutsche Bank today and Austria’s Credit-Anstalt in 1931, only the scale is far larger and additionally includes derivatives with a gross value of $50 trillion.

If the repo problem spreads, it could also raise questions over the synthetic ETF industry, whose cash and deposits may face escalating counterparty risks in some of the large banks and their prime brokerages. Managers of synthetic ETFs should be urgently re-evaluating their contractual relationships.

Whoever the repo failure involved, it is likely to prove a watershed moment, causing US bankers to more widely consider their exposure to counterparty risk and risky loans, particularly leveraged loans and their collateralised form in CLOs. The deterioration in global trade prospects, as well as the US economic outlook and the likelihood that reducing dollar interest rates to the zero bound will prove insufficient to reverse a decline, will take on a new relevance to their decisions.

Problems under the surface

Last week, something unusual happened: instead of the more normal reverse repurchase agreements, the Fed escalated its repurchase agreements (repos). For the avoidance of doubt, a reverse repo by the Fed involves the Fed borrowing money from commercial banks, secured by collateral held on its balance sheet, typically US Treasury bills. Reverse repos withdraw liquidity from the banking system. With a repo, the opposite happens: the Fed takes in collateral from the banking system and lends money against the collateral, injecting liquidity into the system. The use of reverse repos can be regarded as the Fed’s principal liquidity management tool when the banks have substantial reserves parked with the Fed, which is the case today.

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

A Bank With 49 Trillion Dollars In Exposure To Derivatives Is Melting Down Right In Front Of Our Eyes

A Bank With 49 Trillion Dollars In Exposure To Derivatives Is Melting Down Right In Front Of Our Eyes

Could it be possible that we are on the verge of the next “Lehman Brothers moment”?  Deutsche Bank is the most important bank in all of Europe, it has 49 trillion dollars in exposure to derivatives, and most of the largest “too big to fail banks” in the United States have very deep financial connections to the bank.  In other words, the global financial system simply cannot afford for Deutsche Bank to fail, and right now it is literally melting down right in front of our eyes.  For years I have been warning that this day would come, and even though it has been hit by scandal after scandal, somehow Deutsche Bank was able to survive until now.  But after what we have witnessed in recent days, many now believe that the end is near for Deutsche Bank.  On July 7th, they really shook up investors all over the globe when they laid off 18,000 employees and announced that they would be completely exiting their global equities trading business

It takes a lot to rattle Wall Street.

But Deutsche Bank managed to. The beleaguered German giant announced on July 7 that it is laying off 18,000 employees—roughly one-fifth of its global workforce—and pursuing a vast restructuring plan that most notably includes shutting down its global equities trading business.

Though Deutsche’s Bloody Sunday seemed to come out of the blue, it’s actually the culmination of a years-long—some would say decades-long—descent into unprofitability and scandal for the bank, which in the early 1990s set out to make itself into a universal banking powerhouse to rival the behemoths of Wall Street.

These moves may delay Deutsche Bank’s inexorable march into oblivion, but not by much.

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

Bank Run: Deutsche Bank Clients Are Pulling $1 Billion A Day

Bank Run: Deutsche Bank Clients Are Pulling $1 Billion A Day

There is a reason James Simons’ RenTec is the world’s best performing hedge fund – it spots trends (even if they are glaringly obvious) well ahead of almost everyone else, and certainly long before the consensus.

That’s what happened with Deutsche Bank, when as we reported two weeks ago, the quant fund pulled its cash from Deutsche Bank as a result of soaring counterparty risk, just days before the full – and to many, devastating – extent of the German lender’s historic restructuring was disclosed, and would result in a bank that is radically different from what Deutsche Bank was previously (see “The Deutsche Bank As You Know It Is No More“).

In any case, now that RenTec is long gone, and questions about the viability of Deutsche Bank are swirling – yes, it won’t be insolvent overnight, but like the world’s biggest melting ice cube, there is simply no equity value there any more – everyone else has decided to cut their counterparty risk with the bank with the €45 trillion in derivatives, and according to Bloomberg Deutsche Bank clients, mostly hedge funds, have started a “bank run” which has culminated with about $1 billion per day being pulled from the bank.

As a result of the modern version of this “bank run”, where it’s not depositors but counterparties that are pulling their liquid exposure from DB on fears another Lehman-style lock up could freeze their funds indefinitely, Deutsche Bank is considering how to transfer some €150 billion ($168 billion) of balances held in it prime-brokerage unit – along with technology and potentially hundreds of staff – to French banking giant BNP Paribas.

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

The Coming Credit Meltdown Will Be As Bad As The Great Depression And The Financial Crisis: Deutsche

The Coming Credit Meltdown Will Be As Bad As The Great Depression And The Financial Crisis: Deutsche

With investor attention increasingly focusing on what most believe will be the catalyst for the next financial crisis, namely a tsunami in corporate defaults as a result of the disastrous combination of record leverage, higher rates and an economic slowdown, overnight we presented the view of FTI global co-leader of corporate finance and restructuring, Carlyn Taylor, who predicted that “a spike in defaults is on the way, sooner or later.”

The expansion is pretty long in the tooth and there’s definitely a lot of buildup. The activity level of restructuring is rising, maybe not at the rate of bankruptcies, but the pipeline of companies we think are going to end up in restructuring, based on metrics that we analyze, that volume has gone up. And we’re so busy, which we don’t think is just market share, because we think our competitors are also very busy.

Yet while investor worries have centered on record corporate leverage…

… a growing number of strategists are warning that corporate bond market illiquidity is an even greater risk factor.

Not long after Goldman most recently warned that the biggest threat facing the broader market in general, as well as corporate bonds in particular, is a sudden collapse in liquidity, overnight UBS credit strategist Steve Caprio and his team laid out four major reasons why global corporate bond market liquidity has deteriorated over time.

These are:

  1. Rising investment fund ownership of corporate debt,
  2. Low interest rates,
  3. A lack of dealer intermediation, particularly in periods of rising credit risk, and
  4. Potential new EU regulation on trade settlement failures.

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

Deutsche Bank Crimes Can Cause Next Global Crisis – William Black

Deutsche Bank Crimes Can Cause Next Global Crisis – William Black

The International Monetary Fund (IMF) has deemed Deutsche Bank as the most systemically dangerous bank in the world. Professor of Economics and Law, William Black, knows why and contends, “Deutsche Bank (DB) poses as what is called a ‘National Champion’ bank and the largest bank by far in Germany, but it’s actually the largest criminal enterprise in Germany. This is quite a statement because VW is such a massive fraud. . . .It is insane that we allow Deutsche Bank to go from fraud to fraud to fraud. . . .They cheat on everything else you can possibly imagine and, typically, they are getting caught, which is also not a very good sign in terms of their competence even as thieves. Even in the United States, there has been reluctance to crack down on Deutsche Bank. . . . When the New York Commissioner tried to crack down, the Office of the Comptroller of the Currency, the premier banking regulator, actually sought to impede that. He disparaged the New York folks and said there really wasn’t that big of problems and such, and all of that proved to be lies.”

Deutsche Bank was raided by German regulators last week on more allegations of fraud and money laundering.

DB is the epitome of “Too Big To Fail.” So, it will never be allowed to fail, and regulators will not be allowed to regulate them properly. Professor Black says, “Why you should care is Deutsche Bank impedes effective regulation everywhere and because God only knows the next thing they are going to do. This is going to continue until something dramatic changes. Eventually, they can cause the next crisis. . . .There will be a bailout in these circumstances, but that could help trigger another economic crisis.

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

Beware Fireworks As Italy’s Budget Resubmission Deadline Looms

With stocks in Europe attempting a modest relief rally after yesterday’s sharp selloff, traders remain on edge over political developments as today is the deadline for Italy’s cabinet to resubmit their budget proposal after the EC requested a new fiscal plan. Virtually nobody expects any material changes, especially with Il Sole reporting this morning that Italy will maintain its 2019 deficit target at 2.4% of GDP and could alter the 2019 GDP growth rate of 1.5%

When looking at next steps, Deutsche Bank economists yesterday concluded that as contagion has been relatively limited for now, the commission will continue to adopt a tough stance on Italy, and it now seems inevitable they will recommend an Excessive Deficit Procedure (EDP) in the next few weeks.

And speaking of Deutsche Bank, the German lender’s Head of Research and Chief Economist David Folkerts-Landau penned a hard hitting  Financial Times op-ed on the Italian situation, whose argument is that Europe must cut a grand bargain with Italy and that another costly sovereign debt crisis is inevitable unless the confrontational approach of the EC gives way to greater co-operation. According to Landau, Italy has actually been a frugal member of the single currency with a cumulative primary surplus every year outside of the GFC. However, these surpluses have simply helped finance the interest on the legacy debt and debt/GDP has still climbed. Meanwhile, the associated spending cuts and austerity required to run a primary surplus have lowered the standard of living for the population and led us to the political situation we find ourselves at today. What is his proposal?

The only viable option left is to reduce Italy’s debt service payments. This would create room to increase spending to modernise its economy without increasing the deficit and debt.

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

“Peak QE”: This Is What Share Of The Market Central Banks Now Own

After a decade of unprecedented liquidity injections by central banks to preserve the western financial system, global QE has peaked.

First, the aggregate balance sheet of major central banks started to shrink earlier in the year, a reversal that took investors many months to notice but judging by recent market volatility, it is finally being fully appreciated.

Second, beginning this month the Fed’s bond portfolio run-offs as part of its QT are roughly offsetting the combined tapered net QE purchases by the ECB and BoJ. Worse, QT is now set to dominate.

Some facts: between mid-2008 and early 2018, the “Big-6” central banks expanded their balance sheets by nearly $15tn, most of it due to explicit targeted purchases of domestic assets (QE) in addition to other forms of liquidity injections (collateralised lending such as the ECB’s TLTROs or FX interventions equivalent to foreign-asset QE).

According to Deutsche Bank estimates, the four major central banks involved in QE (Fed, ECB, BoJ and BoE) are now collectively holding $11.3tn of securities accumulated through their asset purchase programs.

Why is the above important? Because as Deutsche strategist Michal Jezek, now that liquidity is contracting makes for a timely moment for looking at the proportion of relevant asset classes owned by central banks and putting the ECB’s corporate bond holdings into a wider context.

To begin, as Jezek confirms what we have been saying since the start of 2009, “clearly, QE matters.” As central banks reduced the free float of some securities and QE has worked its magic on confidence and growth, asset valuations reached unprecedented levels while volatility became suppressed. A couple of years ago, a quarter of the global bond market was trading with a negative yield. With global QE fading, this proportion has now fallen by half but remains significant.

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

Italian Bonds Slide After Official Warns Credit Rating Downgrade Possible

After starting off strong, Italian 10Y Yields have leaked wider all morning after a senior government official said on Wednesday that Italy’s 2019 budget may be rejected by the European Commission and a credit rating downgrade is also possible.

“Let’s say that the premise is there” for the commission to start an infraction process over the budget, Stefano Buffagni, cabinet undersecretary for regional affairs, said in an interview with Radio Capital cited by Reuters.

“Premier (Giuseppe) Conte is going to the EU to explain the motivations” behind the budget, he added.

With Moody’s and Standard & Poor’s due to review Italy’s credit rating this month, Buffagni said a downgrade “can’t be excluded and we must be ready” in case it happens. He added, however, that he did not think a downgrade would be justified because “Italy has very solid economic fundamentals”.

Meanwhile, Deutsche Bank economists said they think that Italy is squarely on a collision course with the European Commission, whose President Juncker said yesterday that there would be a “violent reaction” from other euro area countries if the Italian budget were to be approved.

The Commission has two weeks to decide on whether to ask for budget revisions. Nevertheless, Italian assets gained yesterday in the first trading session since the government finalized the budget plan amid the broad market euphoria. The FTSE-MIB gained +2.23%, pacing gains in Europe, and 10- year BTPs rallied -9.3bps, however much of this move is being reversed on Wednesday. Partially this reflected the broader risk-on sentiment yesterday, but it may also have been a reaction to a new poll showing Five Star + Northern League support at 58.6%, still a majority but at its lowest level in over six weeks.

Violence, Public Anger Erupts In China As Home Prices Slide

Last March, we discussed why few things are as important for China’s wealth effect and economy, as its housing bubble market. Specifically, as Deutsche Bank calculated at the time, “in 2016 the rise of property prices boosted household wealth in 37 tier 1 and tier 2 cities by RMB24 trillion, almost twice their total disposable income of RMB12.9 trillion.” The German lender added that this (rather fleeting) wealth effect “may be helping to sustain consumption in China despite slowing income growth” warning that “a decline of property price would obviously have a large negative impact.”

Naturally, as long as the housing bubble keeps inflating and prices keep rising, there is nothing to worry about as the population will keep spending money buoyed by illusory wealth appreciation. It is when housing starts to drop that Beijing begins to panic.

Fast forward to today, when Beijing may be starting to sweat because whereas Chinese property developers usually count on September and October to be their “gold and silver” months for sales, this year has turned out to be different. As the SCMP reports, not only were sales figures grim for September, but the seven-day national holiday last week also brought at least two “fangnao” incidents – when angry, and often violent, homeowners protest against price cuts offered by developers to new buyers.

These protests are often directed at sales offices, with varying levels of intensity – from throwing rocks to holding banners and putting up funeral wreaths. The risk, of course, is that as what has gone up (wealth effect) will come down, and as home ownership has remained the most important channel of investment for urban households in China in the past decade, price cuts have become increasingly unacceptable and a cause for social unrest.

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

Danske Bank – Who helped them Launder?

Danske Bank – Who helped them Launder?

A couple of days ago the always good Francis Coppola wrote a piece for Forbes entitled,

The Banks That Helped Danske Bank Estonia Launder Russian Money

In it she made the simple but essential point that  while Danske Bank, through its Estonian branch, had laundered $234 billion,

…Danske Bank Estonia couldn’t do this by itself. Much of the money was paid in U.S. dollars, and for that, it needed help from other banks. Banks that had access to Fedwire, the Federal Reserve’s electronic settlement system. Big banks, in other words.

Coppola then named the banks involved.

J.P. Morgan, Bank of America and Deutsche Bank AG all made dollar transfers on behalf of the Estonian branch’s non-resident customers. And according to the Wall Street Journal, Citigroup’s Moscow branch may have been involved in some financial transfers in and out of Danske Bank Estonia.  (bold emphasis added by me)

So, Bank of America, Deutsche Bank and J.P. Morgan moved money OUT of Danske and in to dollar denominated accounts elsewhere, (see section 19 of Danske’s internal investigation). but that is only half the story. It leaves the huge unanswered question,

who moved the money in to Danske Bank’s Estonian branch in the first place?  

The accounts through which the money was laundered are non-resident accounts.  Non-resident simply means the people or entities which hold the accounts do not live in Estonia. So how did these non residents deposit their money in Danske’s Estonia branch?  Either they physically transported $234 billion dollar’s worth of their local currencies in trunks and suitcases from their own country, in to Estonia and to the bank, or it had to have been deposited electronically. Which would mean some other banks, in addition to those mentioned by Forbes, were involved.

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

“Failing” Deutsche Bank May Be Kicked Out Of Key European Index

One day after Deutsche Bank’s US operations failed the Fed’s “stress test”, it appears that this outcome had been priced in by the market as DB’s stock price rose as much as 3% in early Friday trading…

… although looking slightly higher in the capital structure reveals ongoing skepticism, with the yield on DB’s 6% contingent convertibles rising, and set to hit 10% any moment.

However, much to the chagrin of investors in the biggest European lender, the barrage of bad news facing Deutsche Bank is not nearly over, and as the WSJ reports, the sharp drop in DB’s stock price could mean the exit from a major European index, jeopardizing its inclusion in the giant funds that track that benchmark, and assuring new all time lows as mutual fund liquidate their holdings.

The issue is that DB’s share price has dropped by more than 40% this year, as it struggles with falling profitability and other legacies of pre-financial crisis exuberance; the price is so low in fact, it would no longer be included in one of Europe’s most important inidices if there were no changes for the next 2 months.

According to WSJ calculations, Deutsche Bank’s market capitalization has fallen to a level that would see it removed from the Euro Stoxx 50, taking the lender out of the orbit of exchange-traded-funds with €42.5 billion ($49.1 billion) in assets that follow this index.

Still, an expulsion from the index is not assured, as a large bout of buying could save Deutsche Bank’s place in the index when it is rejigged in September, “but its presence in the relegation zone is a dramatic indicator of the once-European banking champion’s fall from grace.”

Some more details on the Stoxx 50, one of the most popular European aggregate indices:

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

Deutsche Bank’s Troubles Raise Worries About the Future of the Euro Zone

The euro banking sector is huge: In April 2018, its total balance sheet amounted to 30.9 trillion euro, accounting for 268 per cent of gross domestic product (GDP) in the euro area. Unfortunately, however, many euro banks are in lousy shape. They suffer from low profitability and carry an estimated total bad loan exposure of around 759 billion euro, which accounts for roughly 30 per cent of their equity capital.

Share price developments suggest that investors have lost quite some confidence in the viability of euro banks’ businesses: While US bank stocks are up 24 per cent since the beginning of 2006, the index for euro-area bank stocks is still down by around 70 per cent. Perhaps most notably, ’Germany’s two largest banks, Deutsche Bank and Commerzbank, have lost 85 and 94 per cent, respectively, of their market capitalization.


With a balance sheet of close to 1.5 trillion euro in March 2018, Deutsche Bank accounted for around 45 per cent of German GDP. In international comparison, this an enormous, downright frightening dimension. It is mostly the result of the bank still having an extensive (though not profitable) footprint in the international investment banking business. The bank has already started reducing its balance sheet, though.


Beware of big banks — this is what we could learn from the latest financial and economic crises 2008/2009. Big banks have the potential to take an entire economy hostage: When they get into trouble, they can drag everything down with them, especially the innocent bystanders – taxpayers and, if and when the central banks decide to bail them out, those holding fiat money and fixed income securities denominated in fiat money.

Banking Risks

For this reason, it makes sense to remind ourselves of the fundamental risks of banking – namely liquidity riskand solvency risk –, for if and when these risks materialise, monetary policy-makers can be expected to resort to inflationary actions.

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

Olduvai IV: Courage
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Olduvai II: Exodus
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