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Charting The Epic Collapse Of The World’s Most Systemically Dangerous Bank
Charting The Epic Collapse Of The World’s Most Systemically Dangerous Bank
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.
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.
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G-20 Needs To “Man Up” Or Risk Sparking Market Chaos, Citi Warns
G-20 Needs To “Man Up” Or Risk Sparking Market Chaos, Citi Warns
Over the past month or so, anticipation has built among market participants for some manner of coordinated policy response at this weekend’s G20 summit in Shanghai. The hoped for agreement would ideally be something akin to the 1985 Plaza Accord between the United States, France, West Germany, Japan, and the United Kingdom, which agreed to weaken the USD to shore up America’s trade deficit and boost economic growth.
Calls for coordinated action come on the heels of a turbulent January in which collapsing crude, RMB jitters, and worries that central banks are out of bullets have sowed fear in the minds of investors. “We remain sellers into strength in coming weeks/months of risk assets at least until a coordinated and aggressive global policy response (e.g. Shanghai Accord) begins to reverse the deterioration in global profit expectations and credit conditions,” BofA said last week, ahead of the summit.
“Don’t expect a crisis response in a non-crisis environment,” Lew said in an interview broadcast Wednesday with David Westin of Bloomberg Television. “This is a moment where you’ve got real economies doing better than markets think in some cases.”
Whether or not you agree with Lew’s assessment of “real economies” or not, the message was clear. The US isn’t set to support some kind of joint statement on fiscal stimulus and may not even be willing to be part of a consensus on the need to implement emergency measures to juice global growth and trade.
On Friday, the soundbites are rolling in as the world’s financial heavyweights opine on the state of the decelerating global economy and the turmoil that likely lies ahead for markets.
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What’s The Worst That Could Happen?
What’s The Worst That Could Happen?
Via ConvergEx’s Nicholas Colas,
The 30 stocks of the Dow Jones Industrial Average currently trade for an average of 14.8x next year’s consensus earnings. But… Everyone knows Wall Street analysts are always too optimistic, so what if we just look at the lowest estimate for each company? That “Worst Case scenario” P/E is 16.7x – not “Cheap”, but not crazy expensive either – and incorporates a decline in earnings from 2015 of 1.5%.As tempting as it is to say “Buy stocks” with this math, the truth is hazier. In reality, markets currently discount this “Worst case” as the “Base case”. With the 10 year Treasury yielding 2.1%, that 16.7x multiple is where stocks should actually trade.
The driver of this market pessimism sits at the top of the income statement – the Street’s worst case revenue estimates call for a decline of 1.7% in 2016. Now, Q3 earnings season is unlikely to provide much comfort here; why should corporate managements go out on a guidance limb when their stocks are down on the year? All this points to further volatility in October, and with a bias to the downside.
Of all the words of tongue or pen, the dumbest are these: “What’s the worst that could happen?” I imagine every stupid stunt ever uploaded to Youtube started life with that question. Skateboard off the roof of your parent’s house into the pool… Taunt the chimps at the zoo… Jump a bike over 17 of your friends… That phrase is cursed. Even a movie of the same name, starring Martin Lawrence and Danny DeVito, only has a 10% approval rating on Rotten Tomatoes.
In financial markets, however, this is one of the most important questions you can ask. A few examples:
Every hedge fund uses some form of risk management to understand the worst case scenario for their portfolio. In general, the larger the firm and more complex the strategy, the more elaborate the analysis.
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