The Contrarian

“In the investment markets, what everyone knows is usually not worth knowing.”

Germany’s Largest Banks At The Precipice

By now, the big problems of Europe’s largest banks are well known, more specifically Deutsche Bank (DB). Then came the additional problem: Washington wanted to fine DB $14 billion for mortgage fraud it committed ahead of the last global crisis. The total market value of the firm is around $19 billion. That would basically wipe out the bank. Is that the intent of the heavy fine?

The second largest German bank is Commerzbank. It is planning job cuts of 9000, or about 18% of the workforce.

This is all similar to the time leading up to the global crisis in 2008. It is denial, denial, until the very moment everything false apart. In our book FINANCIAL APOCALYPSE, a chronological account of our analysis and forecasts during 2008, you can see the total lack of insight by Wall Street and how the average investor was fooled by the financial media.

In 2008 we even wrote several emails to producers of financial TV, urging them to show some restrain in their bullish stories because they were leading their viewers over the cliff like lemmings. The emails went unanswered.

From zerohedge:

As a reminder, here are some special moments from Fuld (CEO of Lehman) and Callan’s mouths as Lehman fell…

March 2008: Lehman had eliminated close to 4,000 jobs in the last year.

 April 2008: “The worst of the financial crisis impact is behind us” … “environment will remain challenging for a while”

 “by adhering to strong risk-management standards and running the company well, “I will hurt the shorts, and that is my goal.”

 ‘Lehman has more than $35 billion of cash and liquid assets and another $65 billion of “unencumbered” assets that aren’t pledged elsewhere and can easily be turned into cash,’ Fuld and Chief Financial Erin Callan said Tuesday.

Zerohedge then quotes what the CEO of Deutsch Bank said this week:

And here, as Bild reports, is Deutsche Bank’s CEO John Cryan explaining that everything is fine, nothing to see here… (via Google Translate)

The CEO of Deutsche Bank sees no need for state support of his institution. In an interview with “Bild” (Wednesday) John Cryan said aloud advance notification to the question whether the Bank need government aid: “This is not an issue for us.”

 The manager had also rejected reports and speculation about alleged talks with German Chancellor Angela Merkel (CDU) on state aid for the German bank. “I have not asked the Chancellor at any time for help. I have indicated like nothing.” Cryan said. He could not understand “how someone can say that.”

 Even its shareholders do not want to ask for help of the German Bank CEO. “The question of a capital increase currently does not arise,” said the manager. The Bank met all regulatory capital requirements. They have “far fewer risks in the books than in the past” and was “comfortably equipped with free liquidity”.

 The CEO described the situation of Deutsche Bank as better than it was currently perceived from the outside.

Denial, denial, denial. Our rule is always, “the stronger and more frequent the denials, the more serious the crisis is.”

Now comes the important part: how will it end? This chart from zerohedge compares the Lehman chart in 2008 to Deutsche Bank this year.

lehman-vs-deutsche-bank

The word ‘Cryan’ on the chart refers to the CEO of Deutsche Bank.

If the timeline continues in a similar way, the end is about one month away. Contrary to some, we believe the ending will be different. The ECB will not let DB go bankrupt. It will be bailed out. There are many methods at their disposal. But it will produce some interesting and exciting moments.