Deutsche Bank On The Brink

You don’t know this, but we’ve been warning about Deutsche Bank for years.

We’ve got great friends (and great people) who used to work at the bank and what’s amusing is that the last time we talked to them, they assured us that the idea of the company needing a government bailout was silly.

Well, guess what? This stock is going to zero. And we’re not trying to incite a panic or anything like that. In fact, as we’ve said on numerous occasions, the bank’s research department is top notch - no sarcasm there.

But they ran themselves into the ground with legacy litigation costs, and we’re afraid it’s going to ultimately take them under - or at least cause Jens Weidmann to step in with the Bundesbank’s checkbook.

(Charts: Bloomberg)

Here’s what Sahra Wagenknecht, the co-leader of the anti-capitalist Left party in Germany’s lower house of parliament, told Wagenknecht: “... a bank rescue in the year ahead of national elections in September 2017, in addition to the chancellor’s beleaguered migration policy, would be the end of Merkel’s political career.”

“If she now has to squander taxpayer money again to rescue a failed bank, then she shouldn’t bother to run again. It would be a total disaster.”

No, it wouldn’t. We’re no fan of bank bailouts (as I’m sure almost every Heisenberg reader is acutely aware), but a Deutsche Bank failure would be a disaster of epic proportions. The counterparty risk rivals that of AIG - if not in aggregate than at least in principle. If Deutsche Bank fails, this whole thing will fall apart - and we mean tomorrow. They’re right about one thing: this isn’t Lehman. It’s a helluva lot bigger. And a helluva lot more damaging if it fails. And it’s about to fail. Here’s Bloomberg:

“Wagenknecht, 47, said that hands-off stance by Merkel’s Christian Democrat-led bloc and her That the coalition would really allow the bankruptcy, the dissolution and the liquidation of Deutsche Bank, I could hardly imagine that.”

“A two-term lawmaker and former member of the European Parliament, Wagenknecht is a prominent figure in Germany’s biggest parliamentary opposition party. She took the lead in attacking Merkel’s austerity policies during the euro-area crisis and regularly criticizes what the Left views as a too-cozy relationship between the finance industry and the government.”

“The Left, with 64 seats, together with the Greens at 63, make up the opposition in the lower house to Merkel’s coalition, which controls four-fifths of the Bundestag’s seats.”

“Once the leader of the the Communist Platform wing of the Left party, which was formed in 2007 by dissident Social Democrats and the successor of the communist party that ran former East Germany for four decades, Wagenknecht said Deutsche Bank is too big to fail and should be dismantled rather than rescued.”

Honestly, Wagenknecht has no idea what she’s talking about. She doesn’t understand counterparty risk. Allowing Deutsche Bank to fail would immediately crash markets the world over.

And do you know what the problem is? It’s just what we said here yesterday. This opens the door for Frauke Petry and we’re telling you (and not from a politically biased standpoint, but from a realist standpoint) that Will. Be. A. Disaster.