Over the past days one hears a lot about Deutsche Bank and her money troubles. And even though many might rejoice over the fact that Germany, the country who has bossed around Italy, Spain and off course Greece with many illustrious financial blackmails, is now staring down the barrel of a “state aid” for her own crown jewel bank, i prefer to abstain from the “time’s a beach” paradigm and actually see what all that means.
Germany’s largest bank has been in a poor shape for months now. It has lost €6,8 billion only last year. However, things took a real turn for the worse on September 16th when Deutsche confirmed the rumors that she is to pay $14 billion to America’s Department of Justice in order to settle the bank’s mortgage lending activities and involvement during the US housing bubble in 2005-2007.
To make things even worse, bloomberg news reported that 10 big hedges funds clients had moved part of their derivatives holdings elsewhere in a effort to limit their risk exposure. Friday the 30th, Deutsche’s shares reached a 33-year record low after speculations that the german government is preparing a rescue plan. Following the rumor mill, a few hours later the market shifted as the bank’s shares went up 6,4 %. The change was triggered by another tip that Deutsche and the DoJ have reached a settlement deal of $5,4 billion, a number that most certainly brought color back to their cheeks.
But the picture is a tad bigger than that. The level of risk for european banks has significantly grown over the past years. Things seem a bit grim and Germany will not be so easily spared from the financial madness.
European rules that came into force this year have imposed very strict rules on “state aid” for european banks. Nevertheless, the possibility of a state aid is still on the table. Regardless the reassurances given by both Merkel and the bank’s executive officer John Cryan, saying that a state aid is out of the picture, the stakes are high for Germany’s biggest lender. My guess would be that we still haven’t seen what a rescue plan for a German bank will look like, one thing is for certain though, staff cuts will ironically be in the picture.