- The current rout – one in a long series – was triggered because Chancellor Angela Merkel, the ultimate political animal fretting about the general elections in the fall of 2017, let voters and taxpayers know what they wanted to hear. But investors were not amused.
On Friday, Focus Magazin reported that Merkel wouldn’t meddle in the legal disputes between Deutsche Bank and the US Department of Justice over the $14 billion fine related to the scandal surrounding residential mortgage-backed securities. This is what Merkel had “signaled” to CEO John Cryan in a “confidential meeting” this summer.
Citing “government circles,” Focus reported that CEO John Cryan had “suggested” in that conversation that diplomatic mediation by the German government would be helpful for Deutsche Bank. According to these sources, Merkel also “categorically” excluded the possibility of state aid in election year 2017.
Surely, the Chancellor did not ask for this “confidential meeting.” More likely, a desperate Cryon asked for it. But there’s no official statement about it. Instead, there’s a purposeful leak piped to voters by the ultimate politician trying to get re-elected. Another bailout of bank bondholders and stockholders just isn’t very popular at the moment.
Worth noting:
1) Deutsche Bank has 2 euros per share to go before they drop below the revenue necessary to pay their US fines
2) DB has dropped 2 euros in the past week
3) There's a number, nobody's sure where it is, where DB's CoCos blow up. It's probably not far from that 9 euro mark.
4) DB's balance sheet is 58% the size of the GDP of Germany.
Can you imagine the feeling of the Greek people when Germany inevitably does bail out DB? There was a lot written at the time about how the "bailout" of Greece was really a backdoor bailout of DB, BNP, Credit Suisse, et al. Re: point 4. By some counts, DB has the bigest balance sheet in the world. I'm told it depends whose counting, but if all the derivatives are included, it's actually in the tens of trillions, making it several times larger than US GPD, challenging the size of world GDP. Very insane that we've come to this.
I'm struggling to wrap my head around the whole "balance sheet" thing. I actually had to bug Wolf Richter to explain it to me. I keep falling back to Piketty's statement that the best economy has capitalist participation and socialist regulation and the fact that this, really, is what overbearing central banks are all about. There's this central assumption that eventually "markets" will see through the smoke and mirrors and that the whole Jenga stack will come crashing down, but there's also this inability to see central market manipulation as anything but an epithet and a temporary injury before the Invisible Hand returns money to its rightful owners. I'm no longer sure that's the case, and I haven't seen anyone explain it in terms that make me feel they understand the problem. People point to China and say "it's a market economy for as long as the government wants it to be and no longer" and the Friedmanites point at the New Deal and say how it was socialism that prolonged the Depression... but I haven't seen anyone take the standpoint that maybe, just maybe, the central banks are bleeding out the markets like a stuck pig.
I would never pretend to be knowledgeable about balance sheets, generally. According to John Kay, most balance sheet reporting cancels out debits and credits on the same security (because apparently derivatives are traded back and forth so much so that if I owe you a dollar and you owe me a dollar on derivatives underlying the same source, we just call it an even zero). If you count all these phantoms, then DB's books show $55 TRILLION in total. Their actual deposits and loans are like $600 billion, which means that actual banking represents 1℅ of their overall business.
In a fractional reserve banking system, the actual deposits of any investors are such a small percentage of the balance sheet that it wouldn't hurt the government badly to cover their losses. It's all the derivatives and bonds and exotic financial instruments that are likely to detonate, and those are deliberately tilted to prevent the government from absorbing the loss. Depositors are gonna be fine. Creditors? Yeah haircut.
I find this both fascinating and terrifying. DB has a gut wound and conditions are only getting more trying. The WTO just drastically cut world trade projections with the addition of this statement: Typically, these kinds of years are followed by the war kinds of years.The figures should be a wake-up call for governments, WTO Director-General Roberto Azevedo said in the six-monthly trade outlook report.
Yeah, saw that. Shipping is in the shitter. Oil is swirling the bowl. Incidentally, I recently read about half of The End of Oil. Half, because it's so stunningly out-of-date, despite being ten years old, that it's completely irrelevant. It supposes an economic collapse in which there is no fracking, in which Mexico establishes a new hegemony from overseas LNG processing, in which Saudi Arabia leads a hardened OPEC. Amazing what two presidential cycles can do.