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Is Deutsche Bank The Next Lehman?
Zero Hedge ^ | 06/12/2015 | NotQuant

Posted on 06/12/2015 12:29:07 PM PDT by SeekAndFind

Submitted by NotQuant.com

Looking back at the Lehman Brothers collapse of 2008, it’s amazing how quickly it all happened.  In hindsight there were a few early-warning signs,  but the true scale of the disaster publicly unfolded only in the final moments before it became apparent that Lehman was doomed.

MI-CB391_PECK_G_20140218184730

First, for purposes of drawing a parallel, let’s re-cap the events of 2007-2008:

There were few early indicators of Lehman’s plight.   Insiders however, were well aware:   In late 2007, Goldman Sachs placed a massive proprietary bet against Lehman which would be known internally as the “Big Short”.  (It’s a bet that would later profit from during the crisis).

In the summer 2007 subprime loans were beginning to perform poorly in the marketplace.  By August of 2007, the commercial paper market saw liquidity evaporating quickly and funding for all types of asset-backed security was drying up.

But still — even in late 2007,  there was little public indication that Lehman was circling the drain.

Probably the first public indication that things were heading downhill for Lehman wasn’t until June 9th, 2008,  when Fitch Ratings cut Lehman’s rating to AA-minus, outlook negative.   (ironically, 7 years to the day before S&P would cut DB)

The “negative outlook” indicates that another further downgrade is likely.   In this particular case, it was the understatement of all time.

A mere 3 months later, in the course of just one week,  Lehman would announce a major loss and file for bankruptcy.

article-2203390-1504DEE9000005DC-669_634x346

And the rest is history.

 

Could this happen to Deutsche Bank?

First, we must state the obvious:  If Deutsche Bank is the next Lehman, we will not know until events are moving at an uncontrollable and accelerating speed.   The nature of all fractional-reserve banks — who are by definition bankrupt at all times – is to project an aura of stability until that illusion has already begun to implode.

By the time we are aware of a crisis – if one is in the offing — it will already be a roaring blaze by the time it is known publicly.   It is by now well-established that truth is the first casualty of all banking crises.  There will be little in the way of early warnings.   To that end, we begin connecting the dots:

Here’s a re-cap of what’s happened at Deutsche Bank over the past 15 months:

And that’s where we are now.  How bad is it?  We don’t know because we won’t be permitted to know.  But these are not the moves of a healthy company.

deutsche_ceos2

Jürgen Fitschen will step down May 2016. Jain will step down at the end of this month.

 

How exposed is Deutsche Bank?

The trouble for Deutsche Bank is that it’s conventional retail banking operations are not a significant profit center.  To maintain margins, Deutsche Bank has been forced into riskier asset classes than it’s peers.

Deutsche Bank is sitting on more than $75 Trillion in derivatives bets — an amount that is twenty times greater than German GDP.    Their derivatives exposure dwarfs even JP Morgan’s exposure – by a staggering $5 trillion.

With that kind of exposure, relatively small moves can precipitate catastrophic losses.   Again, we must note that Greece just missed it’s payment to the IMF – and further defaults are most certainly not beyond the realm of possibility.

 

Not good.

Not good.

And if the dominos were not adequately stacked already, there is one final domino which perfects the setup.

Meet Tom Humphrey.  He heads up Deutsche Bank’s Investment Banking operations on Wall Street.

He was also head of fixed income at Lehman.

Prior history.

Prior history.

History never repeats.   But it does rhyme.    In market terms, it tends to rhyme just about every 7 years.

* * *

For more read the Zero Hedge piece from April 2014: The Elephant In The Room: Deutsche Bank's $75 Trillion In Derivatives Is 20 Times Greater Than German GDP



TOPICS: Business/Economy; News/Current Events
KEYWORDS: bankcrisis; derivatives; deutschebank; lehman

1 posted on 06/12/2015 12:29:07 PM PDT by SeekAndFind
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To: SeekAndFind
I wonder if someone at Zero Hedge has the Big Short on Deutsche Bank.
2 posted on 06/12/2015 12:40:01 PM PDT by Servant of the Cross (the Truth will set you free)
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To: All

I have a really important question? Who’s the blonde and what’s her number. Okay, that’s two questions.


3 posted on 06/12/2015 12:42:14 PM PDT by DHerion
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To: SeekAndFind

Even taking into account that it’s Zero Hedge, that 15 month timeline has a rather ugly look to it.


4 posted on 06/12/2015 12:44:13 PM PDT by ChildOfThe60s (If you can remember the 60s, you weren't regally there....)
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To: SeekAndFind

Can someone refresh my memory here was it DB or Credit Suesse that downgraded the US and lowered our paper / credit rating.. Remember it was after that that the Fed started buying treasuries aka monetizing the debt..


5 posted on 06/12/2015 12:52:56 PM PDT by taildragger (It's Cruz & Walker. Anything else is a Yugo with Racing Stripes....)
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To: DHerion

Her name is HANOVER, her number 212 243-1058


6 posted on 06/12/2015 1:00:43 PM PDT by Jolla
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To: SeekAndFind
The problem is that I don't trust the Zero Hedge web site because they're so negative on everything that they tend to cry "Wolf" too many times.
7 posted on 06/12/2015 1:01:23 PM PDT by RayChuang88 (FairTax: America's economic cure)
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To: RayChuang88

Sometimes there are a number of wolves prowling out there and multiple cries of “Wolf” are merited.


8 posted on 06/12/2015 1:21:34 PM PDT by expat2
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To: taildragger

RE: Can someone refresh my memory here was it DB or Credit Suesse that downgraded the US and lowered our paper / credit rating..

It was Standard & Poors.

See here (First paragraph of the article):

https://en.wikipedia.org/wiki/United_States_federal_government_credit-rating_downgrades


9 posted on 06/12/2015 1:25:29 PM PDT by SeekAndFind
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To: SeekAndFind

If DB falls the euro will collapse......................


10 posted on 06/12/2015 1:39:15 PM PDT by Red Badger (Man builds a ship in a bottle. God builds a universe in the palm of His hand.............)
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To: SeekAndFind

Doesnt the US still owe these people some gold?


11 posted on 06/12/2015 2:18:10 PM PDT by ▀udda▀udd (>> F U B O << "What the hell kind of country is this if I can only hate a man if he's white?")
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