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State of Global Markets 2017 - Report

Is Deutsche Bank the Next Lehman Brothers?

Companies / Financial Crisis 2016 Feb 13, 2016 - 10:10 AM GMT

By: Submissions

Companies

Nathan McDonald writes: Has the crash begun? The similarities between the current market environment and those seen in the 2008 economic crisis are scary to say the least. Investors are panicking and for good reason - signs that another Lehman-style crisis may be on the horizon.

Deutsche Bank is the one in question. This German banking powerhouse has had its liquidity called into question and is now on the fence, being attacked from all sides as article after article is released pointing to the dangers the bank now finds itself in.


As we reported yesterday, this uncertainty had a dramatic effect on the stock price of the bank, causing it to crash by 10%, dragging it down to levels not seen since the last economic crisis.

The immediate risk that has so many investors on edge is the fact that Deutsche Bank has €350 million in maturing Tier 1 coupons due in April, and even more in the future. The question of whether they will be able to repay this is what has investors so worried.

The attacks have been so fierce and so successful that Deutsche Bank has been forced to issue a press release defending their positions and the fact that they do have the liquidity to meet debt demands in 2016 and going forward in 2017:

Frankfurt am Main, 8 February 2016 - Today Deutsche Bank (XETRA: DBKGn.DE / NYSE: DB) published updated information related to its 2016 and 2017 payment capacity for Additional Tier 1 (AT1) coupons based on preliminary and unaudited figures.

The 2016 payment capacity is estimated to be approximately EUR 1 billion, sufficient to pay AT1 coupons of approximately EUR 0.35 billion on 30 April 2016.

The estimated pro-forma 2017 payment capacity is approximately EUR 4.3 billion before impact from 2016 operating results. This is driven in part by an expected positive impact of approximately EUR 1.6 billion from the completion of the sale of 19.99% stake in Hua Xia Bank and further HGB 340e/g reserves of approximately EUR 1.9 billion available to offset future losses.

The final AT1 payment capacity will depend on 2016 operating results under German GAAP (HGB) and movements in other reserves.

The most worrisome aspect of this press release is the fact that the 2017 projections do not take into account the recent significant losses that the bank experienced in 2016. This means that they are in a much worse position than they were, but whether or not it will affect them in a major way going forward is yet to be seen.

This is just another similarity to the 2008 economic crisis, as that was the last time a major developed market bank was forced to defend itself in such a manner.

Going forward, we can expect the German government to step in and attempt to stave off further collapse of the Deutsche Banks stock price and stem the outflow of liquidity. Banning short selling and jaw boning aplenty are just some of the first steps that we will see.

As in the past, Central Banksters, politicians, and the media will continue to report that all is well, nothing to see here, move along. Yet, there may be no looking back now. This can of worms has been opened and there may be no putting the lid back on - the contagion will spread.

Nathan McDonald
Sprott Money

Nathan McDonald is a libertarian, entrepreneur and precious metals enthusiast. He has always taken a keen interest in free markets and economics since an early age, which naturally led him to become a true believer in precious metals and all that they stand for.

Nathan served eight years in the Royal Canadian Navy as an electronics technician, seeing the true state of the world, before starting his first successful business. He has since gone on to create a number of businesses, all of which are still in operation and growing.

In addition to this, Nathan runs a network of successful precious metals blogs, and a growing newsletter that has attracted readers from all around the world.

He is a regular and highlighted writer for the highly respected Sprott Money Blog, which covers world events, geopolitics and of course precious metals.

The views and opinions expressed in this material are those of the author as of the publication date, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.

Copyright © 2016 Sprott Money


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