Panic Across Europe Over ‘Contagion’ from Deutsche Bank and Monte dei Paschi Disasters
Oct. 26, 2016 (EIRNS)—Panic has set in over the reality that the Deutsche Bank and Monte dei Paschi crises auger disaster for the rest of the European, and by extension, the U.S. banking systems. "Contagion" is the watchword.
Tomorrow Deutsche Bank is scheduled to release its third-quarter earnings report—good news not expected—while Monte dei Paschi (MDP) suspended trading altogether today, after its share price plummeted from 0.0295 to 0.0276 at the end of trading Tuesday, following the announcement of yet another "rescue" plan. The fantasy-ridden hope is that cutting 2,300 jobs, closing 500 branches, and selling off bad loans will allow it to raise the 5 billion euros it needs by the end of November. But, as Bloomberg analyst Simone Meier commented this afternoon, MDP has been bailed out twice and has no investor support. "If MDP doesn’t pull this off, I don’t know what it means for the rest of Italian banking," she remarked.
Britain’s Express tabloid warns that Deutsche Bank’s third-quarter report could bring down the whole shebang, quoting David Hendler of the New York-based Viola Risk Advisors, who warns that contagion from DB could spread "like wildfire" across the European banking system. "It’s high noon for European banking," he underscored, because European banks are largely incapable of generating economic earnings. The Eurozone economy is dead.
Bloomberg reported today that in its frantic search for cash, Deutsche Bank is considering suspending cash bonuses. Creating more uncertainty, on Oct. 24, Britain’s Sky News reported that a settlement with the U.S. Justice Department (DOJ) on DB’s mortgage fraud, may not be forthcoming until after the November Presidential elections, and the final size of any settlement is unknown. There is the added element that the DOJ may roll mortgage-fraud cases against Deutche Bank, Credit-Suisse, and Barclays into one large, multibillion-dollar settlement, CNBC reported today.
According to the Financial Times today, Deutsche Bank’s Exchange Traded Fund (ETF) unit, a currency-hedged operation, has hemorrhaged $8 billion in cash so far this year, in contrast to 2015, when it attracted inflows of $28 billion. Nor is this just a Deutsche Bank problem, as the ETF "industry" is in crisis across Europe, the Times reports.
Hendler insists that German Chancellor Angela Merkel will have no choice but to step in and rescue Deutsche Bank.
"No bank in Europe is going to buy Deutsche Bank," he warns. As for Monte dei Paschi, it’s beyond help. Being propped up by the Renzi government "is a disaster waiting to unfold.... MDP is a brain-dead bank ... don’t waste capital on it."