There was a story in the Yahoo Financial section yesterday about how Deutsche Bank was just fine, everything was great and they had enough capital to survive the end of the world…
It brought to mind the spin the MSM tried to put on Lehman eight years ago…when they say, don’t worry…that’s when you fuckin’ worry!!!
Banks: Red Alert
The share prices of banks plunge worldwide on some historic lows. That could be a bad omen. Threatens a new financial crisis, which will be even more catastrophic than 2008/2009? – Hedge fund managers: Some banks may drop to zero.
In the interview, the founder of Global Macro Investor says that one or more banks could fall to zero are on the list of the distressed banks.:
Banca Carige SpA
Banca Monte dei Paschi
Royal Bank of Scotland
Deutsche Bank $55 Trillion derivatives bomb is set to explode
Touchy derivatives market spreading Deutsche Bank waves
YOICHI NAGAI, NQN senior staff writer
TOKYO — Doubts about Deutsche Bank’s creditworthiness are rocking financial markets, amplified by investor insecurities about the massive global derivatives industry.
Shares in the German bank plummeted Monday as analysts signaled doubts about its ability to make coupon payments in 2017 on debts issued to shore up its capital ratio. The shock stirred up turbulence in the U.S. stock market the same day and made waves in Tokyo on Tuesday as well.
Tick… tick… tick… tick… tick… tick…
“In retrospect, we can see that our financial markets misallocated capital, mismanaged risk, created risk, and did it all at high transaction costs. It’s very clear that they were involved in trying to maximize transaction costs. That’s their revenues; that’s their profits.… these derivatives are instruments for gambling: non-transparent, difficult to see what’s going on. And in that case, they are increasing risk, diverting attention from the real functions of the financial markets and leading to poor performance of the economy.
Without regulation, you’re going to wind up with the negative aspects of derivatives and not the positive aspects. And that’s precisely what happened. So while they were a potential instrument for improving financial markets, if they are not used correctly, they are a potential — as somebody said — weapon of mass financial destruction. And that’s what they turned out to be.
As seen on ZH….Deutsche Bank at the beginning:
Derivatives: The Unregulated Global Casino for Banks
China Bank Losses May Top 400% of Subprime Crisis
Manager says 10% asset loss would cut equity by $3.5 trillion
China would have to print $10 trillion to recapitalize banks
Kyle Bass, the hedge fund manager who successfully bet against mortgages during the subprime crisis, said China’s banking system may see losses of more than four times those suffered by U.S. banks during the last crisis.
Should the Chinese banking system lose 10 percent of its assets because of nonperforming loans, the nation’s banks will see about $3.5 trillion in equity vanish, Bass, the founder of Dallas-based Hayman Capital Management, wrote in a letter to investors obtained by Bloomberg. The world’s second-biggest economy may end up having to print more than $10 trillion of yuan to recapitalize banks, pressuring the currency to devalue in excess of 30 percent against the dollar, according to Bass.
New Meme: Negative Rates Hurt Banking
So the latest meme out there is that negative rates hurt banking.
That’s all well and good, except … the negative rate is the only tool left in the central banking toolbox. Without negative rates, they have no ability to “save the economy.” They really are out of ammunition, unless they are willing to throw the bankers under the bus, and we know that’s not going to happen.
My sense is, this realization has knocked the props out from under systemic confidence. Money printing didn’t fix everything in Europe, negative rates have pushed DB to the edge, Japan tried negative rates and instead of forcing banks to lend, it resulted in a massive flight to safety – into JGBs and away from risk assets both overseas and at home.
Central banks better come up with something new pretty soon. There’s the banker-friendly proposal (charging interest for cash, taxing cash withdrawals), and the people-friendly proposal (helicopter money/QE for the people). Who knows, maybe they’ll try both.
In the meantime, I think risk assets are headed lower, and gold may just continue to climb.
I wonder what the credit markets are doing right now, behind closed doors…
Surging Credit Risk for Banks Is Becoming a Major Issue in European Markets (Wall Street Journal)
Europe’s ‘doom-loop’ returns as credit markets seize up (The Telegraph)