Deutsche Bank To Launch €50 Billion “Bad Bank” Housing Billions In Toxic Derivatives
Just last week, Jeff Gundlach – in his latest DoubleLine investor call – cracked jokes that Deutsche Bank’s imploding stock, which has been hitting fresh all time lows virtually every day, has a major support area at €0.
Once again, he was on to something because now, just a few days later, the FT reports that the bank which was this close to nationalization in 2016, and failed to consummate a merger with that “other” German bank, Commerzbank, is preparing to roll out Plan Z: amid a deep overhaul of its trading operations (read: mass terminations), the biggest German lender is set to roll out a “bad bank” holding some €50 billion in toxic assets, in a plan that was quite popular in the depths of the global financial crisis.
Meanwhile, as part of CEO Christian Sewing’s ongoing restructuring of DB away from investment bank, “the bank’s equity and rates trading businesses oustide continental Europe will be severely shrunk or closed entirely as part of the revamp”, while managers are also set to unveil a new focus on transaction banking and private wealth management.
Of course, it will hardly come as a surprise that the German bank best known for housing €43.5 trillion in gross derivatives notional (something we first pointed out way back in 2013)…
… will stuff its “bad bank”, known internally also as “the non-core asset unit”, with – drumroll – long-dated derivatives.
Don’t listen to those who say that the EU is dug in, that it won’t shift its position. Listen to what the BBC’s Europe Correspondent Katya Adler said on Wednesday night:
“EU leaders want to avoid a no-deal Brexit, so there is a bit of wiggle room if they think a wiggle could do the trick. “
Sajid Javid MP
WHY THE MONETARY LIFEBOAT WON’T FLOAT
The global financial system has come to rest on a single complacent assumption, one which is seldom put explicitly into words, but is remarkably implicit in actions.
This assumption is that the authorities have, and are willing to deploy, a monetary ‘fix’ for all ills.
Accordingly, the system has come to be seen as a bizarre casino, in which winning punters keep their gains, but losers are sure that they’ll be reimbursed at the exit-door.
So ingrained has this assumption become that it’s almost heresy to denounce it for the falsity that it is.
The theme of this discussion is simply stated. It is that the complacent assumption of a monetary fix is misplaced. The authorities, faced with a crash, might very well try something along these lines, and might even adopt one or more of its most outlandish variants.
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