As of early this morning, Deutsche Bank’s restructuring plan is looking a lot like the lifeboat plan for the Titanic. Research analysts have expressed skepticism that the plan will work and the bank’s stock performance is backing up that assessment. In overnight trading in Frankfurt, the stock had cumulatively lost 10 percent of its value in less than two days of trading since the details of its restructuring were made public. Deutsche Bank’s shares also trade on the New York Stock Exchange, which opens at 9:30 a.m.
Deutsche Bank is widely known to be a major derivatives counterparty – meaning its fate could have a spillover effect on other major banks which have taken the opposite sides of its derivatives trades. Notably, every major Wall Street bank closed in the red yesterday with two, Morgan Stanley and Goldman Sachs, outpacing the herd in losses. Morgan Stanley closed down 1.63 percent while Goldman Sachs declined 1.03 percent. Other big names were down less than 1 percent with JPMorgan Chase losing 0.55 percent; Citigroup shedding 0.38 percent and Bank of America giving up 0.21 percent. One of the big U.S. insurers that is known to be exposed to bank derivatives, Prudential Financial, saw its share price decline by 0.85 percent yesterday.
Deutsche Bank CEO Christian Sewing is apparently trying to pull a hat trick from Wall Street to boost his bank’s sagging share price. According to a report out of Reuters, he “is planning to invest a quarter of his fixed salary in the bank’s shares.”
That sounds very similar to what happened when Citigroup was teetering on the brink in November 2008 and Saudi Prince Walid bin Talal, a large Citigroup shareholder, went public with a statement calling the stock “dramatically undervalued” and announcing he would be buying more shares. The stock continued to plunge the next day and in the months ahead, eventually trading at 99 cents. To massage the appearance of its stock, Citigroup did a 1-for-10 reverse stock split on May 9, 2011 (leaving shareholders with 1 share for each 10 shares previously held while boosting the trading price in the market). Despite that magic hat trick, Citigroup’s share price is still down 86 percent today from where it traded in early 2007, before the financial crisis.
Not to put too fine a point on it, but Citigroup’s plunging share price during the financial crisis was despite it receiving the largest taxpayer bailout in global banking history. As far as the public knows, Deutsche Bank has not been given a government feeding tube from Germany’s Treasury coffers.