Deutsche Bank has fallen under the microscope perhaps more than any other Western financial institution in recent years, not least due to concerns about their financial stability, despite Chief Executive Officer John Cryan stating in February that the bank is “absolutely rock solid.”
Deutsche Bank’s $75 trillion derivatives book which is 20 times greater than Germany’s GDP, and 5 times greater than the entire economic output of the Eurozone has caused alarm bells to ring in many quarters. The bank is currently in the process of fundamentally changing its group and leadership structure. It is looking to reduce the complexity of the Bank’s management structure enabling it to better meet client demands and requirements of supervisory authorities. This is no doubt fuelled by BaFin’s, the German financial regulator, investigation of Deutsche.
In October 2015, Deutsche announced 15000 jobs losses as part of what Cryan recently referred to as a “painful restructuring.” The bank also announced that they will sacrifice their 2015 and 2016 dividends as it sought to bolster its finances and retain capital to pay for its previous mistakes. In May, Deutsche announced that they expected further large legal costs this year to deal with a raft of scandals that have hurt profits and dogged its reputation, but they believed they were coming closer to ending their litigation nightmare.
Recently, Cryan railed on the ECB saying that, “monetary policy is now running counter to the aims of strengthening the economy and making the European banking system safer,” adding that, “the ECB’s policy is squeezing the margins of Europe’s struggling banks, making it harder for insurers to find profitable investments and dangerously distorting financial market prices. The consequences for savers and retirement provisions will be grave.” Perhaps most surprising was he implicitly suggested that if Deutsche Bank goes down it is taking everyone down with it.
Cryan did however admit that ECB intervention did avoid an all out collapse in Europe, but with serious consequences such as negative interest rates on most German debt. He suggested that it was high time that the ECB changed it’s course, not least that the side effects of the ECB’s policy was causing Deutsche particular pain.
Cryan’s recent comment of grave consequences for savers and retirement provisions is not a recent phenomenon, in terms of apportioning blame on ECB policy decisions, given those policies have been the same for a number of years. So why does Cryan now decide to point the finger at the ECB and look to blame them for future risks to the European banking system?
We have recently heard the German government announce that the people should stockpile food and water and it is this author’s assertions, as stated elsewhere on this site, that this is financially related. Perhaps Cryan talk of grave consequences and that if Deutsche goes down it will take everyone down with it, goes hand in hand with this recent government announcement.
Are we close to a financial shock and Deutsche are now aware that we are staring down the barrel of the gun and are looking to deflect criticism in the direction of central bank policy? Whilst the ECB is undoubtedly complicit in such matters, Deutsche also need to accept their own failings not least in their ridiculously bloated derivatives book.
Deutsche Bank, a self-proclaimed "solid rock" of financial stability is literally sinking in the quicksand of its $75 billion of derivatives. There will be extreme financial shock should DB attempt to suck everyone down into its bottomless pit. It is possible to extricate oneself from quicksand, and perhaps the German Government just gave out the instructions.