The Epic Collapse of Deutsche Bank

Visual Capitalist helps us to understand why you should never believe a bank. Here are the highlights since 2009 for Europe’s largest and most important bank:

  • In 2009, CEO Josef Ackermann stated that Deutsche Bank had plenty of capital.
  • The bank was actually hiding $12 billion in losses to avoid a government bailout.
  • Profits turned out to be from criminal activity; Libor manipulation led to a record-setting $2.5 billion fine.
  • Finally it admitted it needed more capital, DB raised €3 billion in 2013, claiming that no additional funds would be needed.
  • Then, in 2014, DB proceeded to raise another €1.5 billion, and after that, another €8 billion.

But the situation is now even worse:

  • With a market capitalization of just $15.8 billion, shares of the 147-year-old company now trade for 8% of its peak price in May 2007.
  • May 16, 2016: Berenberg Bank warns that DB’s woes may be “insurmountable”, noting that DB is more than 40x levered.
  • June 2, 2016: Two ex-DB employees are charged in ongoing U.S. Libor probe for rigging interest rates. Meanwhile, the UK’s Financial Conduct Authority says there are at least 29 DB employees involved in the scandal.
  • June 23, 2016: Brexit decision hits DB hard. It’s the largest European bank in London and receives 19% of its revenues from the UK.
  • June 29, 2016: IMF issues statement that “DB appears to be the most important net contributor to systemic risks”.
  • June 30, 2016: Federal Reserve announces DB has failed Fed stress test due to “poor risk management and financial planning”.

Now the real question: what happens to Deutsche Bank’s derivative book, which has a notional value of €52 trillion, if the bank is insolvent? Are all these contracts then in default? Is this bigger than Lehman?

Here is the graphic evidence from Visual Capitalist: