The Epic Collapse of Deutsche Bank | Hacker News Reader

The Epic Collapse of Deutsche Bank

visualcapitalist.com

60 pointsmrb25 comments

To be clear. DB has not announced bankruptcy. This is a chronicle of the significant fall in stock price since the financial collapse in 2008 and an enumeration of the trouble it is currently in. Whether or not it winds up in bankruptcy is still to be seen. DB is calling for a bailout, but if they're the only ones in trouble through mismanagement of risk then they will probably be allowed to crumble. (probably should crumble)

It will be very hard for the German govt to let them fail. They are very much a point of national pride, and deep in the culture. I suspect the ramifications in Germany would be as big as Bear or Lehman.

No.

Maybe that's true in upper-class circles? Everyone in my bubble is a customer of either Sparkasse, Volksbank or ING DiBa. If it weren't for the constant stream of negative headlines, most people would probably forget about DB altogether.

Letting ANY German bank fail would make our govt look bad, though, after all the posturing during the Greek crisis.

> Everyone in my bubble is a customer of either Sparkasse, Volksbank or ING DiBa.

As an aside, do you have any opinion on the merits of these institutions for personal banking? (I assume you are in Germany.)

Checkout ING DiBa, DKB, and Number26

I'm a big fan of the ING DiBa VISA card which lets you withdraw money for free at many (most?) ATMs in the Eurozone. My experience with their customer service has also been much better than either Volksbank or Sparkasse. I have a second credit card from DKB because withdrawing money abroad is "free" (there's still a fee for currency conversion though, if I'm not mistaken).

I don't know about DB specifically, so I am not making any statement on their financial health. But if they were to collapse, I think neither a bail out or a bankruptcy would be the most likely scenario.

The most likely scenario would be a bail-in, which I think few people outside of the financial community is aware of and understands.

Bail-in is the power given to the regulator to declare a bank non viable and to impose losses on its creditor over a week end, and as a result auto-recapitalise the bank, which will be open for business and healthy the following Monday. You can see it as a flash, extra-judiciary chapter 11.

The regime is designed to impose losses on regular creditors (bond holders), rather than clients taking a credit exposure to the bank through derivatives or deposits, even if in a bankruptcy these would have the same ranking and should suffer the same losses. This should reduce a lot the disruption on the market of a bank going bad.

Banks have been required to hold minimum levels of bailinable wholesale debt to ensure regulators can do a large scale bail-in.

Politically, this would be the safest route for the German gvt, as it doesn't use tax payer funds and does not let bank investors get away scars-free. Again, hypothetically. I don't know about DB specifically and to be honest am a bit surprised by the alarmist statements I read.

[edit] actually looking at their annual report, they report a fully loaded CET1 ratio of 11.1% which is decent. Banks are way better capitalised than in 2006:

https://www.db.com/ir/en/download/Deutsche_Bank_Annual_Repor...

And fresh from the printing presses: DB chief economist asks for ANOTHER 150 billion € of public money (not investors, but the state funds!) for the banks of Europe (http://www.welt.de/finanzen/article156924408/Deutsche-Bank-C...)

F..k this shit. It's just plain insane. Let the banks go bankrupt already and build a better system on their ashes!

Yup agreed. We can either suffer the pain quickly and use state funds to help insure depositor accounts as DB collapses or further prop up the very banks that drug the economy to it knees (while partaking in a host of other illegal activity on the side).

> Let the banks go bankrupt already and build a better system on their ashes!

You don't have idea what you are talking about, it's like saying hey shot me in the head already. Look at 2008 crysis and consequences of letting lehman brothers go bankrupt. We should reform finance, change regulations, but not like that for sure. Truth is that helping banks that are too big to fail from public money is the cheapest solution. You let that kind of bank go and bankrupt and you pay A LOT more for that.

> You let that kind of bank go and bankrupt and you pay A LOT more for that.

Screw banks and introduce socialism. It can work.

$15.8 Billion current market capitalization. I wonder what their assets under management is? If it's higher, that would seem to say that the market values them less than the work they do.

It's a little different. They have trillions of asserts backed up mostly by debt and a small dose of equity. This is how most banks operated, and why they are so volatile. (Lehman was 30 to 1 debt to equity. Most banks are somewhere between 10 and 30 to 1)

DB is trading at about 25% of book value.

I wonder how much of this is due to Greece's financial problems. I have read that German banks lent Greece a lot money the country has not been able to pay back.

What other big banks does Europe have that might stick around? Having all major banks US based would be a huge issue for Europe.

Why?

Just as any company doing business in the US is bound by US law any bank doing business in the EU is subject to the laws of the member states.

And banking is a very well-behaved sector from an incentives (stick and carrots, regulation, microeconomics) perspective, so there will always be banks in the EU. (The question is the barrier to entry, and financial stability and consumer protection, not number of banks.)

From the top 20 banks by assets [1]:

  4 HSBC 
  7 BNP Paribas
  10 Crédit Agricole 
  11 Deutsche Bank
  12 Barclays
  19 Societe Generale
  20 Royal Bank of Scotland

[1] https://en.wikipedia.org/wiki/List_of_largest_banks

From the same Wikipedia page, France is #3 in the world for number of banks in the top 50 by assets behind China and the USA.

US and China based!

But that's the direction of the world anyway. Most European regulators are actively trying to shrink their banks. This is certainly the case for UK and Swiss banks, less so for French banks.

You mean macro-economic plans that rely on exponential expansion don't work?!?

1-2 percent of growth is pretty steady. For how long? Good question, but there are a lot of things to sell, buy, manufacture, design, implement, create and do before every human desire, hobby, leisure activity, taste and kink is satisfied, catered for and served (as far as ethically possible - oh and without also completely wiping us off the face of the planet).

So no problem with exponential if the exponent is rational.

There are always two boundaries for exponential growth: the amount of desires that can be catered to (as you mentioned), and also the amount of resources available to us.

The second one is instructive because you can derive a nice asymptotic bound for it: If you were to conquer space and harvest all available resources on all reachable celestial bodies, your civilization could cover a growing spherical volume of space, bound by the speed of light. That gives a maximally polynomial growth of available resources, O(t^3), assuming an even distribution of resources in space (over cosmic scales). Now observe that every exponential curve (c^t for any c > 1) will outgrow this t^3 behavior eventually.

Of course, that still does not solve the question of when this outgrowing eventually happens. But I feel like resource availability (bound also by technological advances in resource mining and recycling) will be a stronger constraint on growth than our ability to sell shiny new things to people.

LUL

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