Deutsche Bank Falling; Debate over Whether To Bail Out and How
Sept. 26, 2016 (EIRNS)—As of today, the debate is on in Germany over whether the government will bail out the failing Deutsche Bank, in spite of the "no-bailout" policy it has insisted on in Europe. The bank ruled "most systemically dangerous in the world" by the IMF, led a worldwide selloff of financial stocks and sinking of bond yields Monday.
German Chancellor Angela Merkel reportedly ruled out a bailout on Sept. 23, after having talked to Deutsche Bank CEO John Cryan, and also refused to intervene with the U.S. Justice Department to lower a $14 billion fine it is demanding from Deutsche Bank for the latter’s rampant mortgage securities fraud in the United States from 2000-2008.
That was followed, however, by a Bloomberg interview with the CEO of Allianz Global Investors AG, Andreas Utermann, who insisted the German government will have to bail out Deutsche Bank "should this become a self-fulfilling prophesy with the share price going down too low," because the bank is so interconnected with all of German Finance [including Allianz—ed.].
Members of Merkel’s Christian Democrats in the Bundestag then reiterated that there could be no bailout, with one claiming, "There is no similarity between Deutsche Bank and Lehman Brothers."
Debate over how and whether the bank could be bailed out raged all over the financial media.
In the bank’s Monday plunge, its stock fell to 10.6 euros from 11.5; its contingent convertible bonds dropped to 73 cents/dollar from 76; and the price of credit default swaps on its 5-year bonds soared to nearly 500 basis points, essentially equal to the cost of Lehman’s before its bankruptcy.
And with more than 20 times the largest derivatives exposure Lehman Brothers ever had, Deutsche Bank is not like Lehman; it is far, far more dangerous.