Readers will remember my concern in January that a major player in the derivatives market (Glencore) was floundering, which was increasing the possibility of systemic risk -- a "Jim Fixx" event of sudden collapse. Fortunately, the commodities giant was able to quickly sell enough assets to reduce their derivatives exposure, and their stock has doubled since then.
Now, I've become concerned about Deutsche Bank, which is an even bigger player in the derivatives market. Their exposure has been estimated at $34 TRILLION. All European banks are weaker than U.S. banks, because they were not required to raise as much new capital as U.S. banks. Deutsche Bank has a capital base of $16 billion and debts of $162 billion - a 10X leverage.
The bank was already weak enough, when the U.S. precipitated this crisis by fining the bank a whopping $14 billion for complicity in the mortgage-backed-securities disaster causing the 2008/9 global recession. While it is certain to be negotiated to a lesser fine, it did put the weakness of Deutsche Bank into clear focus.
It is not news that Deutsche Bank is weak, but it would be very bad news if the German government did not "bail it out." Over the weekend, Angela Merkel said they would not. The possibility of systemic panic suddenly increased.
There is reason to believe a country like Germany, who would bail out another country like Greece, would also bail out its biggest bank. But, Germany's leader, economy, and biggest bank have all become substantially weaker since then. Fortunately, the bank is also selling assets, such as its insurance company subsidiary. This is obviously a situation that bears careful watching.
Perhaps more importantly, I'm concerned that this has happened twice in one year.
Now, I've become concerned about Deutsche Bank, which is an even bigger player in the derivatives market. Their exposure has been estimated at $34 TRILLION. All European banks are weaker than U.S. banks, because they were not required to raise as much new capital as U.S. banks. Deutsche Bank has a capital base of $16 billion and debts of $162 billion - a 10X leverage.
The bank was already weak enough, when the U.S. precipitated this crisis by fining the bank a whopping $14 billion for complicity in the mortgage-backed-securities disaster causing the 2008/9 global recession. While it is certain to be negotiated to a lesser fine, it did put the weakness of Deutsche Bank into clear focus.
It is not news that Deutsche Bank is weak, but it would be very bad news if the German government did not "bail it out." Over the weekend, Angela Merkel said they would not. The possibility of systemic panic suddenly increased.
There is reason to believe a country like Germany, who would bail out another country like Greece, would also bail out its biggest bank. But, Germany's leader, economy, and biggest bank have all become substantially weaker since then. Fortunately, the bank is also selling assets, such as its insurance company subsidiary. This is obviously a situation that bears careful watching.
Perhaps more importantly, I'm concerned that this has happened twice in one year.
