The contagion of collapse continues. As I suggested would happen earlier this week, the crazy buyout engineered in Switzerland when one of the oldest banks on Earth collapsed spread to equally ancient, gargantuan and zombified Deutsche Bank, and that’s just what’s happening on the surface as the whole global financial structure shook hard again today.
DB’s shares, going down 11% just this morning, have slid by a fifth this month. And, while Credit Suisse, like Deutsche Bank, was as riddled as that nation’s famous cheese with holes it had created for itself, Switzerland lays the blame for its fall on the US banking crisis.
The European column collapses
Deutsche Bank shares fell on Friday following a spike in credit default swaps Thursday night, as concerns about the stability of European banks persisted….
The emergency rescue of Credit Suisse by UBS, in the wake of the collapse of U.S.-based Silicon Valley Bank, has triggered contagion concern among investors, which was deepened by further monetary policy tightening from the U.S. Federal Reserve on Wednesday.
As some ask if it is fair for Switzerland to blame the fall of Credit Suisse on the US, given CS’s longstanding problems since that hulk of corrupt, stinking Limburger was wrongly bailed out in the last financial crisis, I ask, “Why wouldn’t BOTH the US collapse and the bank’s internal rot be the cause?” The US crisis was simply the straw that broke the camel’s back. That’s all.
In every long downfall, there is that last thing that brings the house of cards finally down. Naturally, the first to catch contagion across the ocean from the US crisis was CS. Who was there that didn’t see that old, creaking institution crumbling all across its beautiful Swiss façade? Now that CS has crumbled into UBS, the speed at which Deutsche is sliding is picking up, which opens abundant room to wonder what the crash of these two leviathans will mean for contagion to other banks around the world.
Swiss and global regulators and central banks had hoped that the brokering of Credit Suisse’s sale to its domestic rival would help calm the markets, but investors clearly remain unconvinced that the deal will be enough to contain the stress in the banking sector.
Of course it won’t. Even Moody’s, which is typically one of the last to see bad things coming in credit markets, says,
In an uncertain economic environment and with investor confidence remaining fragile, there is a risk that policymakers will be unable to curtail the current turmoil without longer-lasting and potentially severe repercussions within and beyond the banking sector….
Even before bank stress became evident, we had expected global credit conditions to continue to weaken in 2023 as a result of significantly higher interest rates and lower growth, including recessions in some countries….
The longer that financial conditions remain tight, the greater the risk that stresses spread beyond the banking sector, unleashing greater financial and economic damage than we anticipated.
And how can they not remain tight longer with already hot inflation back on the rise?
Oh, but …
German Chancellor Olaf Scholz told a news conference in Brussels on Friday that Deutsche Bank had “thoroughly reorganized and modernized its business model and is a very profitable bank,” adding that there is no basis to speculate about its future.
Maybe, but he reminds me a lot of Crazy Cramer pumping SVB’s stock as a bargain barely over a month ago:
A month ago (Feb. 8) Jim Cramer said the Silicon Valley Bank stock (SIVB) is “still cheap” and has “room to run”. Today, the bank collapsed.
by u/predictany007 in StockMarket
“Nothing to see here, Folks,” sang the Wall-Street Echo Choir in response to Chancellor Shultz about his favorite Deutschland bank:
“We view this as an irrational market,” Citigroup Inc. analysts including Andrew Coombs wrote in a note. “The risk is if there is a knock on impact from various media headlines on depositors psychologically, regardless of whether the initial reasoning behind this was correct or not.”
“We have no concerns about Deutsche’s viability or asset marks,” Stuart Graham, an analyst at Autonomous Research wrote. “To be crystal clear – Deutsche is NOT the next Credit Suisse.”
“It is a clear case of the market selling first and asking questions later,” said Paul de la Baume, senior market strategist at FlowBank SA.
Eh, give it a few weeks. If there was any surprise in all of this, it was only that Deutsche Bank didn’t go out before Credit Suisse. But the zombie parade isn’t over yet!
[Deutsche Bank] poses as the largest bank in Germany, but it’s actually the largest criminal enterprise in Germany, which is something, because it has to compete with Volkswagen.
Attention: Deutsche Bank is closing its office in Houston, so any fraud normally done there will be moved to the Dallas office.
Part of the problem Switzerland created in how it handled the CS collapse was exercising the legal right in its AT1 CoCo bond contracts to force those bondholders to take the full hit ahead of stockholders. While that caught many bondholders by surprise because they had ignored the fine print, that is no reason to think that exercising that right has not sent panic throughout the many institutions that hold those bonds. It’s not so much that all other AT1 bonds have the same provision — because few if any outside of Switzerland do — but a question of how many institutions throughout Europe and in the US are being damaged, yet another time, by the hit on the CS bonds they held?
