Oh, Look! Deutsche Bank Rallies 14% on A $5 Billion Settlement

Well, what goes up must come down and we suppose what goes down must come up - unless you’re Lehman of course.

For some reason - and we know why - yesterday’s market boogeyman became today’s market savior in a testament to how ridiculous this whole enterprise has become. Here’s the headline summary for those without a terminal:

“DEUTSCHE BANK SHARES REVERSE EARLIER LOSSES IN GERMAN TRADING”

*DEUTSCHE BANK RAISED TO BUY VS HOLD AT DZ BANK

DEUTSCHE BANK PT RAISED TO EU13 FROM EU11.70 AT DZ BANK

“Deutsche Bank shares reverse an earlier drop of 9% in German trading, rise as much as 0.7%, amid trader speculation the bank may reach a lower RMBS settlement with the U.S. DoJ than feared.

  • Deutsche Bank stock is being helped by speculation the DoJ settlement could be lower than feared, Sylvain Loganadin, market analyst at FXCM, says by phone

  • “People don’t want to stay short on Deutsche Bank going into the weekend in case there’s a statement”: Loganadin

  • Unverified handles on Twitter speculate the DoJ fine may be $5.4b, vs reports earlier this month the DoJ had sought $14b

    • Unverified handles including @fiatcurrency, @Fxmacro Tweet or retweet the speculation

  • Deutsche Bank declined to comment on speculation around the level of the DoJ fine”

And here’s BofAML:

Deutsche Bank credit raised to neutral/market weight across DB’s capital structure even as it sees the bank remaining weak for several years, BofAML credit analyst Richard Thomas wrote in note.

  • Market expectations for litigation already “high”; risk is actual fines are at more “reasonable” level

  • DB credit profile likely to remain “weak” for a number of years, even with possible capital increase

  • Upgrade ratings on the DB EUR5%, EUR2.75%, $4.5% T2 bonds to market weight vs underweight; raised EUR1.125% senior bond to market weight vs underweight; upgrade recommendation on subordinated CDS to neutral vs buy protection

    • Downgrading $4.296% T2 bonds to market weight

And here’s the best one of all:

*DEUTSCHE BANK SAID TO NEAR $5.4 SETTLEMENT WITH U.S.: AFP

Five dollars and forty cents. Seems reasonable.

Now obviously, they mean $5.4 billion dollars, but we’re not at all sure how this is a positive development. On top of that, how do you go from demanding $14 billion to $5 billion? That’s like what happens when you meet your maximum out of pocket on your health insurance and have an emergency and the hospital tries to charge the insurance company $20,000 and the insurance company tells them, in no uncertain terms, that they’ll take $5,000 or they’ll get nothing at all.

In other words, why in the world is this up to Deutsche Bank to negotiate. The number was $14 billion. Make them pay it and let the Bundesbank take it from there. That’s the fair way to do this. Of course that never happens. As we alluded to yesterday:

(Chart: Citi)

So that’s obviously a complete joke. And we don’t mean in a “why so serious” type of way.

Nevertheless, here’s Deutsche Bank on the day:

And that’s it. That’s your rally. The hope that Deutsche Bank doesn’t doesn’t go under.

But as we said on Thursday, we know former employees. They’ll need a capital raise or a bailout. Trust us. Because unlike Goldman during 2008, Warren Buffett isn’t going to step in.

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