US Election Just Took A Backseat To Germany

Ok, so Deutsche Bank is all you need to know about today.

We know we wrote about it earlier, but this is a major, major concern. Consider this from ABC News (and we don’t quote them as some kind of financial authority, but rather to emphasize the magnitude of the problem):

“Germany's biggest bank is looking shaky and some investors fear it could collapse and endanger the wider financial system.”

“Some even wonder whether it might become the next Lehman Brothers, the U.S. bank whose failure unleashed the worst of the global financial crisis in 2008.”

“Experts warn against drawing such quick conclusions. Deutsche Bank's shares are down 51 percent so far this year and it's negotiating a multibillion fine in the U.S. that it could have trouble paying.”

“But it's exactly because it is so big and important that it is unlikely to be allowed to simply fail, the way U.S. authorities did with Lehman.”

As we said earlier, we’re going to go out on a limb here: if Deutsche Bank goes under, the system will collapse. Overnight. Their counterparty exposure is unimaginable and as one former employee told us, basically unmeasurable.

This, honestly, is a joke:

DEUTSCHE BANK CREDIT RATING RAISED TO NEUTRAL AT BOFAML

And here are some more jokes via Bloomberg (not their fault by the way, they just report the news):

Deutsche Bank Said to Near $5.4b Settlement With U.S.: AFP Link

  • MORE: Deutsche Bank Settlement Seen in Coming Days: AFP Link

  • Deutsche Bank AT1 Bonds Recoup Losses; DOJ Settlement Seen Link

  • EUR Rebounding Amid Speculation DB Fine May Be Cut: C. Agricole Link

  • Deutsche Bank Raised to Neutral at BofAML Credit Research

  • DZ Bank Joins Deutsche Bank Bulls With Upgrade to Buy

“Upgrade to Buy,” pardon us, but are you serious? The place a in a death spiral. And by the way, Cit’s Andrew Coombs (who we happen to like a lot) reminds of this rather unfortunate set of predictions:

(Chart, Table: Citi)

Yeah. Not so hot Andrew. But to your credit, we don’t think you believed that in the first place, especially given your commentary on the bank’s earnings earlier this year, but we’ll spare you quoting that - mercifully (although we don’t have to).

So what’s the danger here? Well no one really knows. But we’re going to find out (probably). But it’s enough that the German government will - and we mean absolutely will - bail them out. Just like they should have done in 2007 when they allegedly overstated their derivatives book to Canadian SPVs by some $12 billion.

So get ready. Because the US presidential election may have just taken a backseat. And we’ll keep you posted.

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