The ECB will not allow a crash. That I can assure you. So please ignore the following Tweet.
In support of my comforting viewpoint on what the ECB will or will not allow, I present the following concrete evidence.
Deutsche Bank Weekly Chart
Please don’t worry about any of that, just focus on the bigger picture.
Hmm.
I am not quite sure that is the picture I want to present to support my “don’t worry” case.
I have comforting news somewhere. Oh, here it is. I found it.
Deutsche Bank’s Derivatives Casino
Please consider my April 15 post Investigating Deutsche Bank’s €21 Trillion Derivative Casino in Wake of Admission it Rigged Gold and Silver.
I made a slight error in that article so here is an update.
See!
There’s nothing at all to worry about.
As of its 2015 annual report, Deutsche Bank had a mere €32.87 trillion position in interest rate derivatives and a minuscule €6.3 trillion position in currency derivatives.
What can possibly go wrong with that?
Mike “Mish” Shedlock
“You’ve gotta dance while the music is still playing!”
~ former Merril Lynch CEO Chuck Prince
I keep seeing Wolfgang Schauble, partying hard with the “vuvuzelas” at the World Cup tournament that year that South Africa hosted. Seems like only yesterday when it was actually about $14,000,000,000,000 ago.
Oh, well. Who’s really counting?
Prince was CEO of Citibank. Stanly O’Neill was at Merrill. The quote is otherwise accurate. Didn’t he ask .gov to step in and stop him? LOL.
“Deutsche Bank down 21% in pre-market. It’s time to update the Deutsche-Lehman chart.”
The German taxpayer WILL have to step up to the plate and bail them out … sooner or later.
@Brian Considine
You getting the picture yet??
Correction – Eurozone taxpayer. The single currency mutualizes expansive moves, though the German national debt liability increases during a bailout, the increase in government guaranteed money supply will dilute the value of the Euro in the pocket of Euro zone citizen…at least until the debt is paid down. Euro users have no choice in the matter, they will be indirectly funding DB’s revival. That is why the rules were drawn on Euro membership/ECB mandate – to stop this sort of move, and others, happening. The rules were ignored/changed without consent. This is the path to dictatorship, where there is no way to unelect officials or demand acountabiliy. All a country can do is vote to leave, and have dread rained down on it in the process.
DB won’t be the only bank.
Borderline train wrecks Spain, France, Italy, etc. will have their hands full cleaning up their own messes.
Bottom line – Germany will be the only country with the $$s to do it.
And unless Germany gets it wish of a fiscal union … they won’t stick around to bail DB AND other EU banks.
You may be right there. It will look like a full takeover of EU by EU probably, if it goes that way… they are going to have to get it really bad for that to be publicly accepted, I don’t think the public will buy it, but then they aren’t often offered the choice.
Zero chance the Eurozone takes over Deutche Bank. talk about a fantasy world!
If DB needs a bailout (it might) — the EU will be finished. A non-existent entity cannot bail out a major bank. Merkel will not get a chance to apologize, she will have to go into hiding.
I am surprised that Mish is going on about EUR 41 Trillion in ***NOTIONAL*** exposure. Mish is a sophisticated enough finance guy, I am very surprised he is playing along with the media.
The notional amount on a derivative is not the same as the amount at risk. We have no idea how much of those derivatives are hedges against each other. Nor do we know if the bank’s counter-parties are still credit worthy (that is a VERY big worry IMHO). And we don’t know what, if any, collateral DB has to cover losses.
I would be worried about the ECB as a counter-party here. Germany is good for the money (only assuming Deutche Bank is ok), but many of the countries that supposedly “back” the ECB are not. Printing Euros won’t inspire confidence any more than printing Italian Lira — it will signal a bigger problem
But if DB is really in trouble? (it could be) You don’t want to be Merkel, Draghi or Juncker.
The idea that the EU is even in a position to think about bailout out Deutche Bank is absurd. If anything the EU itself is a bigger credit risk right now — one of its two solvent backers just told Brussels to shove it.
Remember when the idiots in Brussels tried to have bankrupt Spain bailout bankrupt Italy, which was bailing out bankrupt Greece and Portugal, who in turn were bailing out Spain? A circle jerk of stupidity.
On a brighter note … Jim Reid likely crapped in his pants …
Obviously, a lot of interesting moves overnight
but the one that sticks out is USDJPY
overnight low of 99.012
currently 102.4
Look for Mauldin and Bass under the steamroller …
I hadn’t noticed that spike in the Yen/Dollar. Ouch! That kind of move in a short time is amazing!
Panic yields opportunity for those with patience and a clear mind.
These moves into gold and worse still…gold mining stocks…are pretty pathetic. Most of these names have already collapsed so what’s the rush now?
The panic into physical gold is even more ridiculous. What? There are shortages of dollars? Maybe if you’re smoking crack all day.
Europe and Japan obviously have a major deflation…actually a depression…on their hands. The Pound getting smoked is INFLATIONARY though…not deflationary. The BOE will need to RAISE rates unless they want to be trading toilet paper for what they have to pay for everything in.
Anywho that doesn’t appear to be happening anytime soon which says to me interest rates must and in fact are SOARING in both Europe and Japan.
These now former Banks and Financial Institutions will need to start raising capital…and indeed they will have to be paying for the “privilege.” Six, eight, ten percent…sky is the limit when the money is no good.
Just ask Russia or Brazil….
Is it opposite day and you actually meant the opposite? Gold and gold mining stocks have already collapsed? A while back they did which was the time to buy. As for Russia and Brazil, they are rising as well after being universally despised. The whole point is buy low and sell high.
Well Deutche Bank says there are not enough dollars.
https://mishtalk.com/2016/06/24/world-running-out-of-dollars-moans-deutsche-bank-economist/
@Seen It all “Panic yields opportunity for those with patience and a clear mind.”
Like
(still can’t get the like button to work for me)
Good thing they employ all those PhDs to keep those multiple plates spinning in a high wind.
“minuscule €6.3 trillion position in currency derivatives”
Sure hope for Frau Merkel’s sake they were’nt long the Cable.
Bankers keep making absurd derivative bets because for decades they were able to use the printing press to bail themselves out. When their nutty derivative bets went against them, the first thing DB did was to demand that Janet print to bail them out. Janet agreed to confiscate goods from Americans, and sent those goods to Euro bankers.
How can Americans vote to Brexit from bailing out bankers? We the people don’t want bankers to slowly confiscate our stuff via inflation.
What Deutche bank stock price is doing, and what Deutche Bank the business is doing, are two completely different things.
Only a fool like Bernanke or Yellen would confuse stock prices with what the real economy is doing.
Deutche Bank’s troubles originate 100% from trying to cooperate with the stupidity of Mario Draghi. The overwhelming bulk of those derivatives are failed attempts to prop up the criminal syndicate in Brussels (and their accomplice at the ECB).
German banks have, for centuries, made their money from company loans. Propping up political initiatives is not something DB knows much about. Charging sub-market rates to borrowers to prop up political initiatives is a recipee for disaster.
Deutche Bank goes down, the EU won’t have time to apologize for their crimes. If Draghi, Juncker and Merkel have any brains left — they won’t push any more…
Oh wait! That idiot Draghi spent Friday saying he plans to finish of the Euro once and for all.
Lets see if Merkel survives next week. She will be out before DB gets a bailout
@Mish –
Looking at the 2015 EOY numbers in your post… the EUR 42 trillion number is bogus. The ***NOTIONAL*** amount has nothing to do with amount at risk; its just a number that excites mis-educated newspaper kids (reporters seems a rather grandiose title for them).
We don’t know the amount at risk (however one might measure it). We don’t know how much of this is hedged (and would net out). We don’t know about the credit condition of counter-parties (a VERY big concern in my opinion).
The EOY numbers show the market value is more like EUR 18.2 billion. Still not a completely helpful number, but its closer to reality that the sensationalist headlines. If 100% of that is at risk, it would be about 1/10th of the guarantee that Germany made to the EU (Germany’s maximum exposure, dictated by the Bundestag and verified by the high court, is EUR 180 billion…. any losses the EU/ECB has above that are not covered by German taxpayers.
The stuff that is cleared through exchanges and/or central clearing groups (CCP) is usually really well collateralized. Credit losses there, if any, should be pretty small.
About EUR 16.6 billion of market value derivatives is bilateral (Deutche Bank is exposed to whatever counter-parties credit risk). From the numbers on this report, we have no way of knowing what part of this 16.6 billion would net out, or what DB’s exposure after netting would be.
While EUR 16.6 billion is hardly chicken feed, it doesn’t make for the sensationalist headlines. And the actual exposure, after netting, is likely smaller.
The German taxpayer could cover EUR 17 billion in losses with their eyes closed — and that is assuming the whole thing is at risk, no netting and no recovery. It would be painful, no question about it — but hardly something that might jeopardize the overall German economy.
The numbers would have changed since the EOY report, but the balance sheet Mish posted suggests Deutche Bank’s total derivatives risk exposure is 1/3rd of what RBS had when it collapsed.
I am very well of the notional values.
Instead do this – Pull up a chart of Deutsche Bank.
Do you see a problem or not?
I guarantee you here is a problem, and derivatives are likely a part of it.
There could easily be other problems as well
Mish
@Mish — pulling up a chart of Deutche Bank doesn’t tell me if there is a problem or not. It says that some finance geeks are panicking. It reflects their tiny little short term attention spans more than anything else.
Sometimes a big sell-off is an amazing buying opportunity. Sometimes the tanking stock reflects over-levered idiots dumping shares that are still liquid in order to cover margin calls on other toxic waste that they would like to get out of but can’t get a bid (or ask). They are forced to sell what they can, not what they would like to.
Sometimes a big sell-off indicates a big problem. Deutche Bank could have a problem, but if they do — we all know the EU is in no position to bail DB out. If DB is worth zero, the rest of Europe is worth even less. Germany (and thus DB) is what is keeping the rest of Europe financially afloat.
Whoops — I should have scrolled down another line on Mish’s derivatives image.
Deutche says its EOY derivatives book, after netting and adding cash collateral is +EUR53 billion, as in positive 53 billion. While this “math” is not really accurate, subtracting the roughly 19 billion market value (including the exchange settled derivatives), suggests DB is sitting on (53 -18) or EUR 35 billion in collateral to cover counterparty losses they likely incurred on Friday.
That doesn’t tell us Deutche’s full, net exposure risk — and the numbers will have changed since EOY. But if Mish’s numbers are accurate, it suggests Deutche’s losses are not likely to jeopardize the bank, much less German taxpayers.
I would be a lot more worried about the ECB’s solvency. Printing Euros to cover losses is no better than printing Italian Lira — if it happens, it would signal the ECB is in serious trouble.
Notional derivative amounts are media hype. Mish is a sophisticated financial guy, I was surprised to be reading about notional amounts