So Deutsche Bank.

[His Divine Shadow]

https://www.theguardian.com/business/20 ... tgage-case

Deutsche Bank has vowed to challenge a $14bn claim by the US Department of Justice to settle an investigation into its selling of mortgage-backed securities.

The claim against Deutsche, which the bank said it would dispute strongly, far outstrips the bank’s and investors’ expectations for such costs.

While it not clear what the final payment will be, a fine as high as $14bn would be a severe strain for Deutsche’s fragile finances and would likely further rock investor confidence in the bank. The bank’s shares fell sharply on Friday morning.

“Deutsche Bank has no intent to settle these potential civil claims anywhere near the number cited. The negotiations are only just beginning. The bank expects that they will lead to an outcome similar to those of peer banks which have settled at materially lower amounts,” Deutsche Bank said in a statement on Friday.

It gave no details about the alleged mis-selling but a source close to the matter told Agence France-Presse that the allegations stemmed from the sale of mortgage securities in the 2008 crisis.

The Department of Justice, which declined to comment on Friday, has taken a tough stance in settlement negotiations with other banks, requesting sums higher than the eventual fine.

In 2014, it asked Citigroup to pay $12bn to resolve an investigation into the sale of shoddy mortgage-backed securities, sources said. The fine eventually came in at $7bn.

....

So the story as I understand it:

• EU fines apple 14 billion (or was it 13)
• The coporations who control the american government tells them to fine Deutsche Bank 14 billion in revenge
• DB cannot pay
• Germany said they won't bail out Deutsche Bank.

So what if DB goes belly up? It has such huge amount of bad credit, 46 trillion or something. It's actually too big to bail even if the germans wanted to. Bye bye eurozone? Should we be considering putting our euros into gold bars or US dollars?

I guess everyone will chicken out in the end though.

[BabelHuber]

The Deutsche Bank has driven itself into this predicament. So I hope the taxpayer doesn't have to bail out the shareholders and the executives with their million-high bonuses.

On the other hand you are right, the Deutsche Bank is too big to fail. So if the shit hits the fan the government has to step in to prevent a vicious cycle which bancrupts other banks and has a severe impact on the real-world economy.

So in this case I hope that the state can find a way to take over the bank in way that:

- Removes all shares from the current shareholders without any compensation
- Gets rid of the current executives without giving them a golden parachute

But realistically, this is more or less only a dream. I expect the government to bail them out like in the past, where the shareholders keep their stocks and the executives keep their bonuses.

And afterwards our politicians will say that this approach was without any alternative. And that they don't understand why the public opinion is against them. And that they also don't understand why so many voters play with the thought to vote for the right-wing AfD party in the next election, after they have done so many good things for the population.

[His Divine Shadow]

Too big to fail is one thing... Deutsche bank is too big to bail.

Unsourced figures, can't remember where I got them but I had them jotted down:
German GDP €2,74 Trillion
Eurozone GDP €9,6 Trillion
Deutsche Bank Total Derivatives Exposure €54,7 Trillion

TBH I am not sure failure wouldn't have been better. Iceland clearly recovered better than nations who bailed their banks out.

[Broomstick]

"Too big to fail" just means "we don't want to suffer the pain required to actually deal with the problem, let's kick the can down the line another decade and hope someone else has to deal with it. La-la-la I can't hear you with my fingers in my ears."

[His Divine Shadow]

Well fortunately, that's not an option as Scrooge McDuck said no and he's the only one rich enough to bail out DB.

[BabelHuber]

Well, I don't think you'd need to spend €50 Trillion to bail them out. You'd "just" need to prevent them from going bancrupt, which still could cost Billions of €.

After all, the reason for bailing out banks is to prevent a domino-effect where lots of other banks go bancrupt. Because if this happens, we could be in a 1929-like situation again, where the banks take the real economy down with them.

But there has to be an approach for the state to take over a bancrupt bank to prevent this, while at the same time making sure that the investors involved will at least get a bloody nose - instead of having a big party to celebrate the bail-out.

[Simon_Jester]

Did Deutsche Bank actually do whatever it is that the US is threatening to sue them over?

[His Divine Shadow]

No idea, does it matter when the big boys play?

After all, the reason for bailing out banks is to prevent a domino-effect where lots of other banks go bancrupt. Because if this happens, we could be in a 1929-like situation again, where the banks take the real economy down with them.

Fortunately a 1929 style situation is unlikely to happen again because of the fact that government stands for a much larger part of the economy these days. That works like a buffer and can work to stimulate and take recovery actions. Biggest problem is probably renomination because the euro will die. That might make it all worthwhile in the long run.

[BabelHuber]

If banks start to go bancrupt, other banks will stop to loan each other money, even for very short-term loans (after all the other bank could go bancrupt during this time, so your money will be gone).

If this happens, you already have your domino-effect with banks going bancrupt left and right.

The only institution which could prevent this is the ECB, it could supply the banks with short-term loans. Perhaps Merkel is counting on this...

[His Divine Shadow]

Yes that would happen, which would not lead to a 1929 style situation in terms of how bad it would get, because the private sector simply doesn't account for that large a share of the economy as it did in 1929 and we have welfare systems and the like.

Well, since the euro is likely to go, it's hard to tell how disruptive renomination would be. If I was a european country I'd already have a plan to renominate national currency ready to go since a few years back,

[K. A. Pital]

What can I say? Whoop de doop, capitalist bastards.

You played, and you lost. Deutsche was involved in many a dubious money laundering scheme. Although not as bloody as Barclays who speculated on food of all things.

They all deserve to burn.

[Thanas]

Deutsche can easily pay the fine if necessary and it will get down anyway.

[Starglider]

14B USD is about four months gross revenue. While it's true that Deutsche's (theoretical) liquid capital reserve is ~220bn and that sounds like a lot, in practice the available buffer (before the bank is in crisis) is a fraction of that; they have a tier 1 ratio in the bottom quartile of investment banks (failed Fed stress tests this year), and are quite vulnerable to a CRA (credit) rating decrease. Being forced to pay a fine of that magnitude could well be enough to set off a vicious circle of loss of confidence from trading clients, creditors and shareholders.

They'll probably manage to dodge the bullet this time, but Deusche has systematic problems (many but by no means all of which stem from fundamental eurozone problems) that are likely to cause a Lehman moment some time in the next decade.

[PainRack]

unrelated, but I cant help finding it linked that Deutsche apparently made lots of bad loans or overleraged itself, and Trump was one of the big name bad loans in 2008