The Story of the Self Destruction of Deutsche Bank

November 26, 2016 4:51 PM

For most of its 146 years, Deutsche Bank was the embodiment of German values: reliable and safe. Now, the once-proud institution is facing the abyss. SPIEGEL tells the story of how Deutsche's 1990s rush to join the world banking elite paved the way for its own downfall.
posted by gen (20 comments total)

Fun fact: DB is one of the few institutions that would loan Donald Trump money when US banks had got wise for his penchant to go bankrupt. And now that they have a $14 Billion fine due their investment in El Presidente might actually pay off.
posted by PenDevil at 8:19 PM on November 26, 2016 [4 favorites]

Prefered this Wall Street Journal article. Apparently Deutsche bank has $47 Trillion dollars worth of derivatives that no one knows how to value. In addition it is sitting on a very small equity base.
If Deutsche bank goes down watch it bring the Italian banks down with it. The end of capitalism is comming !.
posted by Narrative_Historian at 1:23 AM on November 27, 2016

/coming
posted by panaceanot at 3:41 AM on November 27, 2016

It's an odd situation: almost any article paint a picture of an institution that survives because people are terrified of it not surviving. I wonder if the Italian referendum will finally kill it off?

i.e. Italian's vote no; faith collapses in Italy being able to resolve its financial difficulties, particularly its banks; belief therefore finally collapses in DB (due to its exposure to Italian banks); run on DB starts ... and essentially the story of The Mandibles is realised.
posted by rolandroland at 4:40 AM on November 27, 2016

I wish fellow mefite Mutant was around to give his perspective. He was/is based out of Deutsche Bank. I look forward to hearing from other mefites from the finance industry.
posted by jadepearl at 5:12 AM on November 27, 2016 [4 favorites]

Important sub-plot, covered in the New Yorker this summer.

The 10 Billion Dollar Scandal (newyorker)
posted by C.A.S. at 5:37 AM on November 27, 2016 [1 favorite]

The article is horseshit in its own way. A very German view of what went wrong at DB that abrogates any local responsibility.

The story is much less black and white and traces back to what role DB had to play in Germany. Basically it was always a structurally impaired entity that made some bad investments to try to find a path around that. Which isn't to say DB mgmt wasn't a tire fire fire years, but the ultimate outcome would have been the slow-motion failures the other German Commercial banks saw, not something successful and sustainable.

Also not tied to Italy at all.
posted by JPD at 5:40 AM on November 27, 2016 [3 favorites]

The Russian money laundering scandal is exactly the kind of thing a subscale investment bank ends up doing.
posted by JPD at 5:41 AM on November 27, 2016

Prefered this Wall Street Journal article. Apparently Deutsche bank has $47 Trillion dollars worth of derivatives that no one knows how to value.

That's not what that article says.
posted by JPD at 5:43 AM on November 27, 2016 [1 favorite]

So, what are the implications of a global credit collapse? It's coming, isn't it?
posted by MikeWarot at 7:20 AM on November 27, 2016

Uhm? Who knows. A month ago who would have thought gold and high dividend stocks would be the worst performing assets post a trump victory.

Besides DB is worrying about the last war
posted by JPD at 8:08 AM on November 27, 2016 [1 favorite]

Relevant: Deutsche Bank only passed European Central Bank health test by bending rules and
ECB justifies including Deutsche Bank China sale in stress tests

The ECB can muscle southern European banks but not DB.
posted by chavenet at 11:15 AM on November 27, 2016 [1 favorite]

They sold hua xia earlier this month. Like two weeks after the stress test. I'm guessing the ECB got assurances from the PBOC it was a done deal. Besides the stress tests are nonsensical from the jump. What will blow the banks up the next credit cycle is probably an unknown today or maybe five different things you could name, four of which will end up being pretty benign.

Yeah the ECB is a clown show but so is the BuBa, who seem to live in this fantasy land where none of the German bank failures of the last twenty years were there fault in any way.
posted by JPD at 11:39 AM on November 27, 2016 [1 favorite]

Ooop, seems relevant: "Fears mount of multiple bank failures if Renzi loses referendum":
https://www.ft.com/content/e588ea6a-b49f-11e6-961e-a1acd97f622d
posted by rolandroland at 11:41 AM on November 27, 2016

Nah. Probably not relevant. The whole Italian bank issue is hideously misunderstood.
posted by JPD at 2:11 PM on November 27, 2016

So, what are the implications of a global credit collapse? It's coming, isn't it?

This whole thing is a repost from late 2007, right?
posted by heatherlogan at 5:53 PM on November 27, 2016 [2 favorites]

It's just that same crisis in slow motion
posted by JPD at 8:38 PM on November 27, 2016

Hi @JPD,
V interested in your comments re: DB.

1. You say the Italian bank issue is hideously misunderstood - in what sense? (I claim no particular knowledge other than what I've read in one or two places).

2. You stated re: "it's just the same crisis in slow motion" - i.e. the 2007/2008 credit crunch crisis, or some other crisis? If it is, have you already stock-piled beans, petrol/gas, and got your bunker ready?
posted by rolandroland at 5:08 AM on November 28, 2016

The Italian crisis is one overstated by the ECB and northern European folks who expect Italian Bank Balance sheets to look like Norther European bank Balance Sheets.

I.e. the problem is real, but outside of BMPS much more manageable than implied by looking at things like NPLs through a Northern European lens. The way banks are regulated across Europe is actually still quite idiosyncratic, and converging towards similar standards is actually quite difficult and time consuming. For example you would need a unified insolvency regime across the Euro area. You fundamentally cant compare CreVal and Sydbank on GAAP numbers.

DB's issues mostly relate to the hit their balance sheet took during the crisis and the low quality of the investment bank franchise making it difficult for them to grow their capital base internally.
posted by JPD at 7:07 AM on November 28, 2016

Hi JDP,

Thanks. Rather alot of jargon for me in your reply, but I think I get the general gist.
Thanks for taking the time to reply!

R
posted by rolandroland at 2:11 AM on November 29, 2016