Has Deutsche Bank Reached Its ’Lehman Brothers Moment’?
Sept. 30, 2016 (EIRNS)—The financial press is on the edge of total panic over the looming blowout of Deutsche Bank and the implications for the entire trans-Atlantic banking system.
Bloomberg News, in a major analysis today, warns of a zombie banking system turning into zombie economic system. The banking sector in the United States and Europe is going to post overall losses for the second consecutive month on equity markets, as fears of the Deutsche Bank blowout extend beyond just that bank.
"It’s not just the potential risk in Deutsche Bank, there are now lots of concerns about the global banking system and the risk spilling out of European banks,"
Bloomberg quoted Michael Ingram of BGC Partners in London.
"We have a very connected financial system. A zombie financial system at some point translates into a zombie economy."
In addition to DB and Commerzbank AG, ING Groep NV will announce massive job cuts next week, and Wells Fargo’s CEO John Stumpf appears to be on his way out after Congressional grilling. Bloomberg notes that more Federal Reserve Bank Presidents are calling for rate hikes, and they are noting a speech today by Dallas Fed President Robert Kaplan as an important signal.
Market Watch headlines its coverage of the German banking crisis: "Opinion: [German Chancellor] Angela Merkel Has Bungled the Deutsche Bank Crisis, Like Everything Else," by Darrell Delamaide.
"It would be a sadly fitting capstone of Angela Merkel’s checkered tenure as chancellor of Germany if her mishandling of the Deutsche Bank crisis leads to a cascade of bank failures in Europe and completes her destruction of the euro."
Delamaide noted an earlier Market Watch column by Matthew Lynn, demanding that Merkel immediately announce an intervention to save Deutsche Bank. He drew the parallel to the 1931 collapse of German and Austrian banks that led to the Great Depression, as much as the Wall Street crash of 1929. Noting recent electoral defeats suffered by Merkel's Christian Democratic Union party, the author noted Merkel’s recent apology for "not paying attention earlier to the growing crisis in the Middle East and its potential impact on Europe.
"And the reason she was not paying attention, of course, was because she was fixated on her blinkered policy of pommeling Greece into the ground for running afoul of the strict conditions Germany has placed on euro membership. In that long-running crisis, Merkel rejected any compromise or sense of European solidarity as she drove Greece into a devastating recession."
After going through a history of Merkel’s back stabbing of Helmut Kohl, her mentor, and then a truncated history of Deutsche Bank’s demise after the Herrhausen assassination, under a string of foreign directors, following the ill-founded takeover of Morgan Grenfel, Delamaide concludes:
"It is truly inconceivable that even Merkel would actually allow Deutsche Bank to fail, but her modus operandi of waiting too long to acknowledge crises and then kicking the can down the road may already have done irreversible damage."
The Wall Street Journal lead story in the Money & Investing section is "Deutsche’s Lehman Dilemma," noting that Lehman fell because they lacked sufficient capital when investors fled, and DB is being viewed in parallel, as hedge funds pull out. "Lehman taught everyone that there’s very little upside in keeping your exposure," one hedge fund manager was quoted. Ultimately though, DB is different than Lehman because "Most important, Deutsche has access to the European Central Bank as its house pawnbroker, meaning it can turn even fairly hard to sell assets into cash if it needs to." But
"None of this makes Deutsche immune. No amount of liquidity could ever be enough if clients or depositors lose faith, because not all assets can be swapped for cash at the ECB."
The Journal’s own solution is to screw current shareholder by issuing new shares, thus further diluting value.
"Deutsche has been resisting this as its stock moves ever lower. One lesson from Lehman is that it too proudly rejected rescue capital, not liking the price. Deutsche should be careful not to follow the same logic."
Fox News coverage noted that Deutsche Bank CEO John Cryan issued an open letter to employees assuring them that the bank is sufficiently capitalized to weather the crisis, triggered most recently by 10 hedge funds shorting DB. He also cited the $5 billion Goldman Sachs settlement with the Department of Justice as a more likely outcome for DB, not the $14 billion price tag put on the table at the start of the negotiations with Deutsche Bank by the Justice Department.. The article notes the possibility of a merger between DB and Commerzbank, which, Fox notes, has its own troubles.
In fact, other news accounts suggest that the Justice Department is working furiously on an "omnibus settlement deal" with DB, Barclays and Credit Suisse, which, according to a Financial Times account, President Obama wants to conclude before he leaves office. DB has set aside 4.5 billion euro for penalties and legal costs in anticipation of such a sweetheart deal.