Deutsche Bank Litigation / Bailout Watch

quote:

---

The German government will have to bail out Deutsche Bank AG if its financial situation gets bad enough, Allianz Global Investors AG Chief Investment Officer Andreas Utermann said.

“I don’t buy at all what’s coming out of Germany in terms of Germany not wanting to step in ultimately if Deutsche Bank was really in trouble ,” Utermann said Monday in a Bloomberg Television interview with Francine Lacqua and Tom Keene. “It’s too important for the German economy.”

---

quote:

---

“It’s unimaginable that we would help Deutsche Bank with taxpayers’ money,” Hans Michelbach, a senior lawmaker in Merkel’s Christian Democrat-led bloc, said in an interview. “It would lead to a public outcry. The political establishment would lose credibility if the government jumped in.”

For Merkel, any whiff of government action would be electorally toxic just as she faces a backlash against her refugee policy, unrest in her party bloc and slumping poll ratings.

---

quote:

---

And yet it has become increasingly hard to ignore the slow-motion car crash that is Deutsche Bank, or to avoid the conclusion that something very nasty is developing at what was once seen as Europe’s strongest financial institution. Its shares have been in free-fall for a year, touching a new low of 10.7 euros on Monday, down from 27 euros a year ago. Over the weekend, the German Chancellor Angela Merkel waded into the mess, briefing that there could be no government bail-out of the bank.

But hold on. Surely that is an extra-ordinary decision? If the German government does not stand behind the bank, then inevitably all its counter-parties – the other banks and institutions it deals with – are going to start feeling very nervous about trading with it. As we know from 2008, once confidence starts to evaporate, a bank is in big, big trouble. In fact, if Deutsche does go down, it is looking increasingly likely that it will take Merkel with it – and quite possibly the euro as well.

---

quote:

---

Deutsche Bank is not what it was. It’s not just the 30 year low in the share price. It’s not just the new market cap way (way) below organizations that would once have been considered its inferior. Nor is it Angela Merkel’s suggestion that Deutsche is on its own and has no hope of being bailed out by the German government before the national election in September 2017. It is – as the Financial Times helpfully points out – that, unless Brexit is made very easy indeed, there’s no way now that Deutsche will be able to separately capitalize investment banks based in London and Germany. The investment bank will have to move to Frankfurt; bye-bye London Wall.

Before Deutsche’s London investment bankers prepare to lose their jobs or decamp to Bad Homburg, however, it’s worth considering the extent to which Deutsche’s travails threaten to become an economic and political rather than a purely financial issue. In a worst case scenario, the Telegraph argues that Deutsche could take down Angela Merkel and – or – the edifice of the European Union.

If confidence in Deutsche Bank evaporates and Merkel refuses to stand behind the bank, the Telegraph says all hell could be let loose. After all, the IMF says Deutsche is the key source of systemic risk in the global banking sector with J.P. Morgan, HSBC, BNP Paribas and others all heavily exposed to it. The ensuing economic chaos would be unlikely to ingratiate Merkel with the German electorate.

---