How EU Overreach Pushed Britain Out
Deutsche Bank to Initiate the Next 'Financial Crisis'!
By: Chris Vermeulen
On June 29th, 2016 the IMF stated that "among the [globally systemically important banks], Deutsche Bank appears to be the most important net contributor to systemic risks, followed by HSBCand Credit Suisse," reports The Wall Street Journal.
However, if you were to believe that statement, why should you be concerned about a German bank and how it will affect you while living in the U.S.? The IMF adds: "In particular, Germany, France, the U.K. and the U.S. have the highest degree of outward spillovers as measured by the average percentage of capital loss of other banking systems due to banking sector shock in the source country," reports Bloomberg. The chart below clearly shows the systemic risks emanating out of a Deutsche Bank (DBK) collapse.
Two years in succession, the American unit of Deutsche Bank has failed the FED's "stress test" which is what determines the ability of the bank to weather out yet another 'financial crisis'.
Leverage of Lehman vs. Deutsche Bank:
In 2007, Lehman had a leverage (the ratio of total assets to shareholder's equity) of 31:1. At the time that Lehman filed for bankruptcy, it had $639 billion in assets and $619 billion in debt. Still, it caused a 'systemic risk' worldwide.
In comparison, DBK has a mind boggling leverage of 40x, according to Berenberg analyst, James Chappell. He stated, "facing an illiquid credit market limiting Deutsche Bank's (DBK) ability to deliver and with core profitability impaired, it is hard to see how DBK can escape this vicious circle without raising more capital. The CEO has eschewed this route for now, in the hope that self-help can break this loop, but with risk being re-priced again it is hard to see DBK succeeding."
Why Can't the ECB save DBK in the similar fashion as how the FED saved the banks, in the US?
The nominal value of derivatives risk that DBK holds on its' books is $72.8 trillion, according to the banks' April 2016 earnings report. What is astounding about this, is that a single bank owns 13% of the total outstanding global derivatives, which was a staggering $550 trillion in 2015.
What is more concerning and alarming is that the market cap of DBK is less than $20 billion.
Nonetheless, the nominal value of derivatives exposure does not mean that DBK will have a default worth trillions of dollars seeing as most of the contracts are covered by counterparties. However, when the domino effect is put into motion, we have witnessed how it engulfs the entire world, into it.
If the domino effect does occur, Germany with its GDP of $4 trillion or the EU with a GDP of $18 trillion will not be in a position to gain control over it.
A nominal figure of the high derivatives risk on DBK, as of December 2014, is shown in the chart below.
Negative interest regime is NOT the solution to global economic problems which we are facing today:
The European Central Banks' NIRP policy is making matters worse for DBK, as the banks' profits are getting squeezed thus making it difficult for it to repair its' balance sheet.
The bank is finding it difficult to sell its' assets because of illiquid credit markets. The banks' management will also find it difficult to raise capital as the investment-banking industry is in a "structural decline", according to Berenbergs' James Chappell.
BREXIT is adding to the woes:
DBK receives 19% of its' revenues from the UK. After the "BREXIT" vote, the uncertainty regarding future relations of the U.K. with Europe has increased the risk for all of the banks. President Francois Hollande of France is eyeing the financial industry and is pitching for them to move to Paris from London.
DBK is the biggest European bank in London. Moving operations, which are handled by 8,000 members of the staff, will not be an easy task for DBK and will further weaken their balance sheet.
How is the stock behaving?
The stock is in a downtrend and has broken below the panic lows of 2009.
The stock is quoting at a price to book ratio of 0.251, which indicates the pessimism of the markets towards the stock. The investors believe that the stock is not worth more than a quarter of its' liquidation value.
A comparative study of the stock, with Lehman, gives a more accurate picture of the future price of DBK, which is zero.
The German Newspaper 'Die Welt' reported that the great George Soros had recently opened a short position of 0.51% of the DBK's outstanding shares. This equates to 7 million shares, worth $7.5 billion, reports Investopedia.
The easy monetary policy of various Central Banks is the main reason for the banks holding such massive leverage. The "next financial crisis" will cause the Central Banks' actions to be redundant and ineffective, as they will not be in a position to control this impending catastrophe! In such a situation, the world will revert to the only remaining resort left, and that is gold.
Why ISIS Persists
Jeffrey D. Sachs
NEW YORK – Deadly terrorist attacks in Istanbul, Dhaka, and Baghdad demonstrate the murderous reach of the Islamic State (ISIS) in Europe, North Africa, the Middle East, and parts of Asia. The longer ISIS maintains its strongholds in Syria and Iraq, the longer its terrorist network will create such carnage. Yet ISIS is not especially difficult to defeat. The problem is that none of the states involved in Iraq and Syria, including the United States and its allies, has so far treated ISIS as its primary foe. It’s time they do.
A World in Crisis, and No Genius in Sight
An old order is being swept away, and political leaders everywhere seem lost.
By Peggy Noonan
The leaders of the world aren’t a very impressive group right now. There’s a sense with some of them of playing out a historical or cultural string, that they’re placeholders in some way. Many are young, yet so much around them feels tired.
Which has me thinking, again, of the concept of the genius cluster. They happen in history and no one knows why. It was a genius cluster that invented America. Somehow Franklin, Jefferson, Washington, Adams, Madison, Hamilton, Jay and Monroe came together in the same place at the same time and invented something new in the history of man. I asked a great historian about it once.
How did that happen? He’d thought about it too. “Providence,” he guessed.
There was a small genius cluster in World War II—FDR, Churchill, de Gaulle. I should note I’m speaking of different kinds of political genius. There was a genius cluster in the 1980s— John Paul II, Reagan, Thatcher, Vaclav Havel, Lech Walesa, Lee Kuan Yew in his last decade of leadership in Singapore.
The military genius cluster of World War II—Marshall, Eisenhower, Bradley, Montgomery, Patton, MacArthur, Nimitz, Bull Halsey, Stilwell—almost rivaled that of the Civil War—Grant, Lee, Stonewall, Sherman, Sheridan, Longstreet.
Obviously genius clusters require deep crises, otherwise their gifts are not revealed. Historic figures need historic circumstances. Also members of genius clusters tend to pursue shared goals.
Everything feels upended, the old order that has governed things for 70 years since World War II being swept away. Borders have disappeared before our eyes. Terrorism, waves of immigration transforming whole nations, Islam at war with itself and parts of it at war with the world. In the West, the epochal end of public faith in institutions, and a dreadful new tension between the leaders and the led. In both background and foreground is a technological revolution that has actually changed how people experience life.
It is a world crying out for bigness, wisdom, steady hands and steady eyes.
We could use a genius cluster.
I’m not quite seeing its members coming, are you? Maybe they’re off somewhere gaining strength.
But the point we’re in feels more like what a Hollywood director said was the central tension at the heart of all great westerns: “The villain has arrived while the hero is evolving.”
Let’s hope some evolve soon.
This thought is inspired by the past week’s Brexit aftermath. To limit criticism to the political players, the European Union did not distinguish itself, the British government didn’t even create a contingency plan in case Leave won, and the victors actually scrammed while markets convulsed and the pound fell. When Leave leader Boris Johnson finally did speak, what he said was astonishing.
The vote was significant, he wrote in the Telegraph, but shouldn’t be misunderstood: “It is said that those who voted Leave were mainly driven by anxieties about immigration. I do not believe that is so.” Instead they had “a sense that British democracy was being undermined.” The public wanted to seize back some control.
Well, yes. But immigration was very much part of the seize-back-control story. It’s in all the polls.
Then: “And yet we who agreed with this majority verdict must accept that it was not entirely overwhelming.”
It was 52% to 48%, not huge but decisive enough. And wait a second, “we who agreed” with the verdict? He led the campaign! He didn’t “agree” with the outcome, he was its most prominent advocate!
Whatever changes come, he added, they “will not come in any great rush.”
There’s a line between calming markets and undermining your cause. He crossed it.
What a failure of nerve. It likely contributed to the restiveness that led the other main Leave proponent, Michael Gove, to bolt away from Mr. Johnson and announce he would run to replace Prime Minister David Cameron.
Contrast what Mr. Johnson wrote with the statement, days later, of Home Secretary Theresa May, who had been pro-Remain though relatively quietly, certainly relative to Mr. Johnson.
“Brexit means Brexit,” she said. “The campaign was fought, the vote was held, turnout was high and the public gave their verdict. There must be no attempts to remain inside the EU, no attempts to rejoin it through the back door and no second referendum.”
“Politics,” she added, “isn’t a game.”
Thank you, madam, and well done.
Ms. May is a moderate conservative with a steady hand who is said to be somewhat ideologically opaque. But here she was blunt and clear. More, she seemed to intuit the damage to be done to the public’s trust if Parliament threw the decision back in its face. Part of politics is simply knowing what people need when they need it. In this case it was the unambiguous taking of a stand.
In the end, Mr. Johnson bowed out of the contest for party leader. He is a witty and clever man, a showman who may have more lives than a cat. But he won’t be part of a genius cluster anytime soon.
EU leadership since the referendum has been wholly lacking. “What doesn’t kill you makes you stronger,” purred European Council president Donald Tusk, quoting Nietzsche.
In this case what doesn’t kill you this time will likely kill you next, so you might want to wake up.
The EU should be supple now, not brittle and predictable, which is to say bureaucratically brutal. It should surprise the world and demonstrate some give. It should grant Britain a relatively smooth exit.
Let people see the decency and constructiveness of it and come to doubt their own antipathy.
You’re not such a bad lot. Strategic pliancy would actually be an assertion of strength. If the European Union is a prison, as Brexit supporters felt, it makes sense for the warden to make an example of Britain to keep the other inmates in line. But if the EU is a place of peaceful commerce it has an opportunity to show it. Take it. The Brits aren’t the only ones who hate you.
The EU was founded for one great reason: to redirect the energies of a continent twice convulsed by world war and turn them to peaceful pursuits—trading goods, making money, each nation knowing the other in a context of constructiveness. It succeeded! But in the past 30 years it expanded, took on more power and authority, made more demands, fell too in love with its ability to apply limits. Even during the Brexit debate the EU’s conversation was not of devolving power to member states but taking more to Brussels. As Boris Johnson noted in March, when he seemed to remember such things, the result, in Britain, was public alienation, which contributed to a sense of “disengagement,” which has contributed to “the rise of extremist parties.”
That was an accurate diagnosis. I add only that the EU inculcated in its officials and apparatchiks an outrageous and insular snobbery that left them incapable of seeing critics as anything but ignorant, racist knuckle-draggers. They noticed, didn’t like it, and rebelled when they could.
Here’s to rebellion. Happy 4th.
Les doy cordialmente la bienvenida a este Blog informativo con artículos, análisis y comentarios de publicaciones especializadas y especialmente seleccionadas, principalmente sobre temas económicos, financieros y políticos de actualidad, que esperamos y deseamos, sean de su máximo interés, utilidad y conveniencia.
Pensamos que solo comprendiendo cabalmente el presente, es que podemos proyectarnos acertadamente hacia el futuro.
Gonzalo Raffo de Lavalle
Las convicciones son mas peligrosos enemigos de la verdad que las mentiras.
Quien conoce su ignorancia revela la mas profunda sabiduría. Quien ignora su ignorancia vive en la mas profunda ilusión.
“There are decades when nothing happens and there are weeks when decades happen.”
Vladimir Ilyich Lenin
You only find out who is swimming naked when the tide goes out.
No soy alguien que sabe, sino alguien que busca.
Only Gold is money. Everything else is debt.
Las grandes almas tienen voluntades; las débiles tan solo deseos.
Quien no lo ha dado todo no ha dado nada.
History repeats itself, first as tragedy, second as farce.
We are travelers on a cosmic journey, stardust, swirling and dancing in the eddies and whirlpools of infinity. Life is eternal. We have stopped for a moment to encounter each other, to meet, to love, to share.This is a precious moment. It is a little parenthesis in eternity.
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