The woes of Deutsche Bank have helped to undermine the euro in the past few sessions but rumours of proposed government support are helping to find dip-demand this morning.
DAX is up 1.2% but off its highs and that's capping EUR gains for the
moment as other reports dismiss the notion of Germany being able to help
its own banks whilst looking down their nose at the Italian bank
EURUSD currently 1.1220 with offers/res into 1.1250 and larger interest at 1.1280 and 1.1300 still
casting a shadow.
Large option expiries also in play today and they appear to be providing additional support.
had a look above 0.8630 more than reversing the early losses to 0.8590
and that fresh demand continues to cap GBPUSD gains.
Still more to come from Draghi later, and Yellen ofc, and we can expect a lot more dancing on hot coals.
This story sounds like it's probably less of a worry than the screaming headlines would suggest.
reports that a 'number of funds' who clear derivatives with Deutsche
Bank have withdrawn 'some' excess cash because of fears the bank is in
They report that about 10 of the 200 derivatives clients have made changes.
Would that be the government bailout or the UBS take-over talk that's being bandied around?
For what exactly?
While it now seems that Friday's rumor of a substantially reduced Deutsche Bank settlement with the DOJ, which sent the stock price soaring from all time lows, was false following a FAZ report that CEO John Cryan has
not yet begun the renegotiation process, and in the "next few days" is
set to fly to the US to discuss the proposed RMBS misselling settlement
with the US Attorney General, Germany's largest lender continues to be
impacted by the public's declining confidence, exacerbated over the
weekend by a disturbing "IT glitch."
For one, it remains unclear if Friday's report halted, or reversed,
the outflow of cash from DB's prime brokerage clients, which as
Bloomberg first reported last week was a major catalyst for the swoon in
the stock price. However, as UniCredit's chief economist Erik Nielsen
notes in a Sunday notes, one thing is certain: "so long as a fine of
this order of magnitude ($14 billion) is an even remote possibility,
There is also the threat of the bank's massive derivative book, which
despite attempts of many pundits to gloss over, over the weekend none
other than JPM admitted that that is what the markets will likely be focusing on for the foreseeable future: "In
our opinion it is not so much funding issues but rather derivatives
exposures that more likely to trouble markets going forward if Deutsche
Bank concerns continue. This is especially true if these concerns
propagate into a confidence crisis inducing more rapid unwinding of
Indeed, as we first hinted last Thursday...
is continuing to cut back the size of its derivatives book, which is
not as risky as investors may believe, Chief Risk Officer Stuart Lewis
told German weekly paper Welt am Sonntag.
"The risks in our
derivatives book are massively overestimated," Lewis told the paper. He
said 46 trillion euros in derivatives exposure at Deutsche appeared
large but reflected only the notional value of the contracts, while the
bank's net exposure to derivatives was far lower, at around 41 billion
"The 46 billion euros figure sounds gigantic, but it is
completely misleading. The real risk is far lower," Lewis said, adding
that the level of risk on Deutsche Bank's books was in line with that
seen at other investment banking peers.
"We are trying to make
our business less complex and are paring back our derivatives book.
Parts of it were transferred into a non-core unit some years ago."
banking regulations imposed in the wake of the 2009 financial crisis
discourage large bets on risky assets, and have forced Deutsche Bank to
drastically cut back the scale of its derivatives exposure.
are financial contracts that draw their value from the performance of
an underlying asset, index or interest rate. They can be used to hedge
Deutsche Bank AG’s negotiations with the U.S. Justice Department to
resolve a years-long investigation into the lender’s handling of
mortgage-backed securities are continuing, according to people familiar
with the matter.
Germany’s Bild newspaper reported in its Sunday
edition that Chief Executive Officer John Cryan wasn’t able to reach an
agreement with the Justice Department during a meeting in Washington. He
was there to help negotiate potential multibillion-dollar penalties,
according to the report.
The German lender and U.S. authorities
haven’t broken off their talks, said the people, who asked not to be
identified because discussions are private. Concerns about the bank’s
ability to pay a $14 billion opening settlement bid from the Justice
Department sent the company’s stock to a record low last month. Cryan
has said he expects U.S. authorities to scale back the initial request.
bank, which set aside 5.5 billion euros ($6.2 billion) for litigation
at the end of June, may face additional penalties to wrap up other
outstanding investigations, including a money-launder inquiry tied to
its Russia operations. Analysts at Barclays Plc speculate that could
cost the bank as much as 2 billion euros.
firm is still considering seeking damages against former CEOs Anshu Jain
and Josef Ackermann, Bild reported. The newspaper said the company
froze a portion of bonus payments to Jain and other former top managers.
Deutsche Bank spokesman declined to comment on the status of talks and
on Bild’s article. A representative for the Justice Department also
declined to comment when contacted after the newspaper report. Spokesmen
for Ackermann and Jain couldn’t be immediately reached for comment
outside of business hours.
Cryan, a Briton who speaks fluent German, has sought for the past three weeks to reassure
investors that Deutsche Bank can weather the formidable obstacles to
its financial health. The bank is holding informal talks with Wall
Street firms about options to deal with legal costs, including a stock
sale that could raise 5 billion euros, people with knowledge of the
matter said last week.
Qatar’s royal family is also considering increasing its stake in Deutsche Bank to as much as 25 percent, according to people with knowledge of the matter.
has said the lender may fail to be profitable this year after posting
the first annual loss since 2008 last year. With plans to eliminate thousands of jobs and cut risky assets, he called 2016 a peak restructuring year.
According to Reuters sources, DB's CFO has told staff representatives that a further 10,000 jobs should go.