Should the markets fear a Halloween Brexit?

Boris Johnson is more determined than Jeremy Hunt to force a departure on October 31

Gavyn Davies


Conservative leadership hopeful Boris Johnson has said that it is 'eminently feasible' the UK will Brexit on Halloween © Reuters


With Boris Johnson apparently still the favourite to win the Conservative leadership, even after his recent domestic drama, investors are being forced to ask what this means for the only form of Brexit that could quickly disrupt the economy and frighten the markets — a disorderly Brexit on October 31, Halloween.

Mr Johnson has failed to give a categorical guarantee that the UK will leave on that date, saying only that it is “eminently feasible”. However, he has said unequivocally:


If it comes to a choice between no deal, and no Brexit, I would have to back no deal.

Boris Johnson, BBC website, June 19, 2019


His rival Jeremy Hunt, who might conceivably become prime minister by default if Mr Johnson were to drop out, has been more nuanced. Like Mr Johnson, he prefers no deal to no Brexit, but has emphasised the importance of achieving Brexit through a “good deal”, adding:


I would not pursue no deal, with all the risks it involves, if there was the chance of a good deal.

Jeremy Hunt, BBC Website, June 19, 2019


The risks of political miscalculation before October 31 certainly seem larger than they were in the run-up to the initial Brexit date of March 29.

Then, parliament was ready and able to exert its natural majority to prevent a no-deal Brexit. Furthermore, both prime minister Theresa May and the EU were willing to accept a long postponement of Brexit. None of these safety valves is so obvious this time around.

The markets are reluctant to accept that the next deadline on October 31 might be the real one. Sterling retreated towards two-year lows as Mr Johnson’s political star ascended but (oddly) there has been no spike in implied market volatility in the run-up to the end of October and therefore no general concern about turbulent events. That may prove to be rather complacent.

The next prime minister will probably start by asking the EU to abandon the Irish backstop, and/or accept a new deal in which the UK would transition to a free trade arrangement in the longer term. Both these options have been repeatedly rejected by the EU in previous rounds of negotiations.

Mr Johnson appears to believe that the UK can unilaterally impose a free trade arrangement with the EU under the GATT 24 rules. Mark Carney scotched that idea on Friday, pointing out that it can only be done by agreement with the EU. The only unilateral option open to the UK would be an exit under World Trade Organization tariffs, which leaves the Irish border question unresolved.

Mr Johnson’s likely strategy is to establish a credible threat of a no-deal Brexit on October 31 in order to bring the EU back to the negotiating table. He has one possible trump card in this endeavour. He has repeatedly warned that part of the £39bn departure payment offered by Mrs May in exchange for her deal could be withdrawn.

Without a withdrawal agreement, the UK could claim that only about £2bn-3bn of these payments are indisputably due in the final financial settlement. Another £4bn-6bn are probably due by October, because the UK will have remained inside the EU for nine months of this year. That leaves more than £30bn of future payments that could become the subject of a very protracted and bitter dispute under public international law, with no certain outcome.

In such charged circumstances, it is uncertain whether parliament could muster a majority to derail a UK government determined to head for the exit. The Institute for Government has argued that this would be difficult to enforce under normal parliamentary procedures. In response, the Speaker immediately hinted that he would facilitate a blocking action in the House of Commons. But a Labour motion to prevent no deal was defeated by 11 votes two weeks ago.

The ultimate blocking motion is, of course, a vote of no confidence in the government. It is doubtful whether Conservative Remainers would bring down their own newly elected prime minister, with opposition leader Jeremy Corbyn lying in wait. It would be a novel form of kamikaze politics, that’s for sure.

Another question is whether a no-deal Brexit is really something that the markets should panic about anyway. The medium-term consequences are generally agreed by economists to be negative. But the markets have already priced in that assumption. What is really worrying is the temporary chaos that could follow a sudden, disorderly rupture.

Mrs May reportedly stopped Whitehall’s emergency preparations for no deal after March 29, and the 6,000 civil servants involved were disbanded. Mr Johnson’s first act would be to restart the process with maximum urgency, but that leaves only about three months to get everything done before the deadline. The civil service says it might get ready, but private industry still seems totally unprepared.

In an unusually frank publication last year, the Bank of England outlined several different scenarios for no-deal Brexit (see box). In the absence of any transition, they reckoned that there could be a hit of 4.75-7.75 per cent to UK gross domestic product within a few months.

Preparations for no deal with no transition since then have probably been insufficient to eliminate all these risks.If the incoming prime minister can negotiate an agreement with the EU to transition to a no-deal Brexit over, say 12-18 months, then the immediate damage to GDP could be much smaller, even negligible. But that is certainly not something that the markets should be taking for granted.

Brexit risks and options market pricing

Last November, the Bank of England published estimates that suggest the disruptive economic effects of a disorderly no-deal outcome on March 29 could have been very large. Despite some government preparation since then, considerable disruption could presumably still follow an October 31 no-deal, no-transition Brexit.




The options market has not priced any large increase in uncertainty in the run-up to October 31. This might need to change in coming months.


Brazilian Pension Reform Could Bring Investors Returns for Years to Come

By Craig Mellow


Photograph by Carl De Souza/AFP/Getty Images


Things may be threatening to fall apart at global flash points from the Persian Gulf to Hong Kong.

But they are coming together in Brazil, at least from investors’ point of view. The No. 1 question for the fifth-largest emerging market has been whether insurgent president Jair Bolsonaro could shepherd fiscally critical pension reforms through an unwieldy Congress that includes some 30 political parties. It increasingly looks like he can.

A Brazilian lower house committee lately kicked off hearings on a bill that would produce 900 billion reals ($234 billion) in social security savings over a decade, clearing the way for passage by early autumn. A June 14 general strike called to protest the changes sputtered. The 900 billion figure is more than enough to catalyze a near-stagnant economy, fund managers say. “This would put Brazil’s fiscal situation on sustainable footing for the next 10 to 15 years,” says Graham Stock, head of emerging markets sovereign research at fixed-income specialist Blue Bay Asset Management.

A pension breakthrough could open the gates for reforms of Brazil’s dysfunctional tax system and sclerotic labor regulations, not to mention igniting private investment and leaving the central bank room to cut interest rates, Stock continues. “You could see 3% to 3.5% growth without crossing the frontier of what’s possible,” he enthuses. Brazil has not expanded that fast since 2010.

Bolsonaro was pegged early on as the “Trump of the Tropics.” But unlike the prototype, he has largely kept quiet on complex policy issues, leaving the pension sausage making to finance minister Paulo Guedes and Congressional speaker Rodrigo Maia.

Where investors divide is on whether Brazil’s good news is already priced into its assets. The iShares MSCI Brazil exchange-traded fund (ticker: EWZ) has climbed by 40% since Bolsonaro took a commanding lead in the polls last September, while global emerging markets are flat. The real has gained 9% against the dollar.

Jonas Krumplys, an emerging markets portfolio manager at Ivy Investments, sees further gains driven by reforms that are so-far below the radar, like positive management overhauls at state oil company Petroleo Brasileiroand banking giant Caixa Economica Federal, or a raft of privatizations that courts have green-lighted. “Brazil is our No. 1 overweight,” he says.

Verena Wachnitz, a portfolio manager for Latin American equities at T. Rowe Price, thinks the cream has been skimmed for now. “A lot of positive expectations are baked in,” she says. “Why not wait a few months to see if they turn out?” Stock, for all his future expectations, sides with Wachnitz from the bond market perspective. “We have an overweight, but not a big overweight,” he says.

The cautious outlook reflects memories of 2017, when pension reform seemed on the verge of passing until prosecutors charged then-president Michel Temer with corruption and racketeering. (He was arrested this March and awaits trial.) Similar shocks to the system are possible this time around, notably from embezzlement probes swirling around Bolsonaro’s son Flavio, a senator representing Rio de Janeiro.

Still, Brazil is enjoying a status it has not seen in a while: a bright spot on a hazy global horizon. Bolsonaro is using his charisma to good end, by market calculus, and the large, inward-looking economy is relatively insulated from turmoil elsewhere. Trade accounts for less than one-quarter of Brazil’s gross domestic product, compared to 38% for China. That looked like a disadvantage in globalization’s heyday, but now may be more of a comfort. The nation’s destiny is in its own hands, and the hands look surprisingly steady.

American Power Without Wisdom

Over the last seven decades, US global leadership has been underpinned by a delicate balance between persuasion and raw power. By relying solely on force to advance US interests, President Donald Trump is undermining America's international position and courting catastrophe.

Ana Palacio

palacio96_AlexWongGettyImages_angrytrumpyellingatreporters


MADRID – In Greek mythology, it was prophesied that Zeus’s first wife Metis, the goddess of wisdom, would bear a son who, equipped with his mother’s cunning and his father’s power, would eventually overthrow the king of the gods. To protect his position, Zeus swallowed the pregnant Metis whole. The prophesied usurper-son was never born, though a daughter, Athena, sprang from Zeus’s forehead.

The qualities of metis (cunning wisdom) and bie (raw power) fascinated the ancient Greeks. At some moments, they revered the former, embodied by Odysseus, the legendary hero of Homer’s epic poem The Odyssey. At others, they celebrated the latter, personified by great warriors like Achilles. But the ideal was a combination of the two. That remains true to this day.

Over the last seven decades, the United States seemed to have figured out how to strike the long-elusive balance between metis and bie. Endowed with abundant resources, free of regional competitors, and surrounded largely by oceans, the US was primed to be a global power. But it was the multifaceted, flexible nature of America’s leadership style – which combined military, demographic, and economic advantages with a compelling cultural message and clever diplomacy – that enabled the US to maintain its position as the world’s preeminent superpower.

Rather than exerting its will on the rest of the world solely by force, the US positioned itself as a systemic power – one that was committed to upholding a broader world order that ultimately served everyone’s interests. Using both carrots and sticks, the US convinced countries that they were better off participating in that order than rejecting it. This combination of persuasion and sheer strength – metis and bie – formed the basis of US global leadership.

US President Donald Trump’s administration, however, is throwing this carefully calibrated system into disarray. Far from displaying a capacity to persuade, as the title of his book The Art of the Deal might imply, Trump is attempting to use raw power alone to force his “America First” agenda on the rest of the world.

There are ample examples of Trump’s predilection for power. It is reflected in his pressure on European countries not only to spend more on defense to fulfill their NATO obligations – a valid demand – but also that they must continue to channel that spending toward US-made weapons systems. It is also evident in his bellicose threats against America’s purported enemies. Most recently, the Trump administration has been beating the war drum against Iran, using murky intelligence about mysterious explosions that have crippled six commercial tankers in the Gulf of Oman since May to justify a military buildup in the region.  
Trump’s tendency to rely on brawn, rather than brains, is further evidenced by the US’s zealous use of economic tools – namely, sanctions and tariffs – to advance its policy interests. The escalating trade war with China has drawn headlines. But Trump’s recent threat to impose crippling tariffs on imports from Mexico unless that country’s government curbed migration across its northern border was particularly telling. “Tariffs,” Trump recently gloated, “are a beautiful thing when you’re the piggy bank, when you have all the money.”
And yet the message of history is clear: by embracing force and eschewing persuasion, the US is undermining its own authority – and courting catastrophe. That is what happened in 1950, when General Douglas MacArthur, after driving North Korean forces out of the South, heedlessly marched north, where his forces and their allies encountered – and were overrun by – Chinese forces.

It is also what happened in 1964, when the US used attacks by North Vietnamese torpedo boats on American destroyers in the Gulf of Tonkin as a pretext for adopting a congressional resolution that allowed President Lyndon B. Johnson, and then President Richard M. Nixon, to escalate US military involvement in the Vietnam War. (The parallels with the current situation in the Gulf of Oman are concerning, to say the least.)

The US made a similar mistake in the 2000s in the course of the War on Terror, which relied on massive force and shunned the strategic cunning favored by many American diplomats, sowing instability throughout an already-fragile Middle East.

Of course, US leadership also suffers when the pendulum swings too far in the opposite direction. Trump’s predecessor, Barack Obama, leaned so heavily on soft persuasion that the US lost much of its credibility as a guarantor of global stability. This helped to set the stage for today’s disorder.

Whether in ancient Greece or the modern world, the effectiveness of relying on metis or bie alone is limited. Eventually, cunning can be anticipated and countered, and strength can be gradually worn down or, if a fundamental weakness is identified, quickly demolished.

For now, the US still has enough power to force countries to bend to its will. But the world is already working to change that. There is a growing push away from dollar-denominated transactions. The European Central Bank is promoting increased us of the euro internationally, while China signs currency-swap agreements to promote the renminbi.

The last several decades of American power have, on the whole, been good for the world. What comes next may not be so benign or productive. To preserve and perpetuate its power – and support global peace and prosperity – the US must walk a fine line between cunning and force. And Trump is hardly known for keeping his balance.

Ana Palacio is former Minister of Foreign Affairs of Spain and former Senior Vice President and General Counsel of the World Bank Group. She is a visiting lecturer at Georgetown University.

 Who Gets to Own the West?

A new group of billionaires is shaking up the landscape.

By Julie Turkewitz

Payette River canyon in Smiths Ferry, Idaho. Parts of the area are now owned by Dan and Farris Wilks, leaders among a new class of landowners who are buying up vast parcels of the West. Credit Credit Max Whittaker for The New York Times



IDAHO CITY, Idaho — The Wilks brothers grew up in a goat shed, never finished high school and built a billion-dollar fracking business from scratch.

So when the brothers, Dan and Farris, bought a vast stretch of mountain-studded land in southwest Idaho, it was not just an investment, but a sign of their good fortune.

“Through hard work and determination — and they didn’t have a lot of privilege — they’ve reached success,” said Dan Wilks’s son, Justin.

The purchase also placed the Wilkses high on the list of well-heeled landowners who are buying huge parcels of America. In the last decade, private land in the United States has become increasingly concentrated in the hands of a few. Today, just 100 families own about 42 million acres across the country, a 65,000-square-mile expanse, according to the Land Report, a magazine that tracks large purchases. Researchers at the magazine have found that the amount of land owned by those 100 families has jumped 50 percent since 2007. 
Much of that land stretches from the Rocky Mountains down into Texas, where, for some, commercial forests and retired ranches have become an increasingly attractive investment.

Battles over private and public land have been a defining part of the West since the 1800s, when the federal government began doling out free acres to encourage expansion. For years, fights have played out between private individuals and the federal government, which owns more than half of the region.

But now, with wealthier buyers purchasing even larger parcels, the battle lines have shifted. Many local residents see these new owners as a threat to a way of life beloved for its easy access to the outdoors, and they complain that property that they once saw as public is being taken away from them.

The Wilkses, who now own some 700,000 acres across several states, have become a symbol of the out-of-touch owner. In Idaho, as their property has expanded, the brothers have shuttered trails and hired armed guards to patrol their acres, blocking and stymying access not only to their private property, but also to some publicly owned areas. This has drawn ire from everyday Idahoans who have hiked and hunted in those hills for generations.

The Wilks brothers see what they are doing as a duty. God had given them much, Justin said. In return, he said, “we feel that we have a responsibility to the land.” 
Some of the new owners have been welcomed. The cable magnate, John Malone, for instance, has been praised by the Nature Conservancy for his family’s conservation efforts, and other buyers have helped to clean up trails and restore pristine acres.

The arrival of this new class of landholders comes as the region is experiencing the fastest population boom in the country, which is driving up housing prices and the cost of living and leaving many residents fearful of losing their culture and economic stability.

In Idaho, Rocky Barker, a retired columnist for The Idaho Statesman, has called the conflict a “clash between two American dreams,” pitting the nation’s respect for private property rights against the notion of a beauty-rich public estate set aside for the enjoyment of all.

The clash, he said, is part of a larger transformation of the region — from an economy rooted in extraction to one based on recreation; from a working class culture to a more moneyed one. “Big landowners,” he said, “are just another new force.”

The Gate

Tim Horting is among the people caught up in the debate. Mr. Horting, 58, a heavy equipment salesman, grew up hiking in the woods north of Boise, a forest threaded by dirt routes that offer views of the state’s celebrated peaks. He learned the terrain from his father, who taught him to chop wood, gut deer and haul game home for dinner.

Mr. Horting and his wife, Kim, built a cabin in those woods in 2006, right by Boise Ridge Road, which led to a popular recreation area built mostly on public land. The Hortings said they wanted their grandchildren to grow up with a feel for rural life. “This is the whole reason I moved here,” Mr. Horting said. For years, he assumed the road was public, and he would guide his ATV up its steep ascent, his grandchildren in tow.

A generation of hikers, hunters and snowmobilers had done the same.


A forest road is gated off by the Wilkses’ company, DF Development.CreditMax Whittaker for The New York Times


Then, in 2016, the Wilks purchased 172,000 acres at the edge of Mr. Horting’s home. Soon, a gate went up on the road, and a sign was tacked to a nearby tree: “Warning. Private Property. No Trespassing.”

To Mr. Horting and others, Boise Ridge Road was now closed.

It was just the beginning. Gates with “private property” signs were going up across the region. In some places, the Wilkses’ road closings were legal. In other cases, it wasn’t clear. Road law is a tangled knot, and Boise County had little money to grapple with it in court. So the gates stayed up.

The problem, said Mr. Horting, “is not the fact that they own the property. It’s that they’ve cut off public roads.”

“We’re being bullied,” he added. “We can’t compete and they know it.”

The Owners

In recent years, longtime timber and fossil fuel investors have been joined by newer types of buyers in the region.

Brokers say the new arrivals are driven in part by a desire to invest in natural assets while they are still abundant, particularly amid a fear of economic, political and climate volatility.

“There is a tremendous underground, not-so-subtle awareness from people who realize that resources are getting scarcer and scarcer,” said Bernard Uechtritz, a real estate adviser.

Among the nation’s top landowners are Mr. Malone, with 2.2 million acres in New Mexico, Colorado and other states; the media mogul Ted Turner, with two million acres in Montana, Nebraska and elsewhere; Peter Buck, a founder of Subway; Charles and David Koch, who run cattle outside of Lubbock, Tex.; and Jeff Bezos, who operates his space company from a West Texas outpost. William Bruce Harrison, the scion to an oil fortune, now owns 19 mountains in Colorado. 

In the intermountain West, the purchases come amid a population boom that has exacerbated local concerns about the loss of space and culture. Last year, Idaho and Nevada were the fastest growing states in the nation, followed closely by Utah, Arizona and Colorado.

These new buyers have become a symbol of a bigger problem: The gentrification of the interior West.

In 2018, more than 20,000 Californians arrived in Idaho; home prices around Boise also jumped 17 percent. This has meant not just new subdivisions and microbreweries, but also packed schools, crowded ski trails and heightened anxiety among teachers, plumbers and others, who are finding that they can no longer afford a first home.

When Stan Kroenke, the owner of the Los Angeles Rams, purchased a vast Texas ranch in 2016, he sent eviction notices to dozens of people with homes around a lake, some of whom were retirees with little money for a move. At the time, his representatives said he was returning the shoreline to a more natural state.




Note: Land owned by the Wilks brothers is defined as land parcels under DF Development LLC. Public lands are defined as land managed by the Forest Service, the Bureau of Land Management and the State of Idaho.• Sources: AcreValue, Bureau of Land Management, U.S. Forest Service• By Jugal K. Patel/The New York Times


The Wilkses

The Wilks brothers, the sons of a bricklayer, grew up outside Cisco, Tex., a town of fewer than 4,000 people where their father was the head of a conservative church called the Assembly of Yahweh.

At first, the brothers founded a masonry company. In 2001, seeing a business opportunity, they began building fracking equipment, just as an oil-and-gas boom took off. A decade later, they sold Frac Tech for a reported $3.5 billion.

This has allowed them to donate generously to causes they believe in, including right-wing media outlets, Senator Ted Cruz’s White House run and President Trump’s re-election bid. It has also allowed them to buy enormous parcels, particularly in Montana, where they are prolific donors to local politicians, and in Idaho, where they’ve hired lobbyists to protect their interests. 
In Montana, they own some 300,000 acres, and have built several homes and a private airport on a property called N Bar ranch. Today, they live mostly in Texas.

Justin Wilks said they had shuttered their Idaho acres to protect them, after years of unchecked snowmobiling and camping had ruined much of the landscape.

“We want to be good neighbors,” Mr. Wilks said. “I know some people think we haven’t been, just because we haven’t let them freely roam across our property as they saw fit. But I’ll also offer: Do you want me camping in your front yard?”



A camera trained on a closed road on the Wilkses’ land.CreditMax Whittaker for The New York Times


Conservation

The concept of private property is embedded in the nation’s framework, and many large landowners cite this as the foundation for their holdings.

“John earned everything that he’s made,” said Rye Austin, who leads the land preservation foundation created by John Malone’s family. “If he wants to purchase and own land, we live in a capitalist country, why shouldn’t someone be able to buy land? That’s the whole concept of private property.”

Many landowners are engaged in conservation and have entered into easements that limit future development on their parcels, and also provide them with significant tax breaks. 
But setting aside land for conservation has not always staved off criticism.

In Idaho, the Wilks brothers did more than gate a few roads. They also revoked road-use contracts that propped up the region’s multimillion-dollar snowmobile industry, shut down hunting on their land and told timber companies to pull crews from the area. About 100 people lost their jobs.

No one claimed that those actions were illegal, but they heightened fears that local residents were losing control of the region. A 2017 video of a roadside argument between an armed Wilks guard and a local ATV rider traveled quickly around the state.

Afterward, the Wilks family hired a lobbyist to push for a law that would stiffen penalties for trespass. The bill passed.
















Amid the dispute, some residents emailed the Wilkses, asking permission to cross their property. They were surprised to receive a response suggesting they first visit a popular right-wing website and share their opinions of its content.

The site, PragerU, features videos supporting the hard-lined conservative views of personalities like Ben Shapiro and Dinesh D’Souza. The portal has been heavily financed by the Wilkses.

Mr. Horting, a lifelong conservative, was “insulted,” he said. “I’m not going to give my political views to use your land.” 
Soon, the brothers were the subject of articles in The Idaho Statesman. County prosecutors began investigating the road closings and explored litigation.

In a series of peace offerings, the brothers reopened access to some snowmobile trails and restarted some logging. More recently, they opened the gate on Boise Ridge Road and removed the No Trespass signs. Some people in the area, including the Valley County recreation director, Larry Laxson, applauded the effort. “They did a lot of things wrong when they came to Valley County,” he said, “but it’s getting better.”

Mr. Wilks said he was trying to resolve access issues with frustrated neighbors. But ultimately, he said, “our Heavenly Father has blessed us with lots of gifts,” and his family’s priority was to protect them.


Doris Burke and Alain Delaquérière contributed research.

Julie Turkewitz is a national correspondent based in Denver. Since joining the The Times in 2014, she has driven more than 200,000 miles around the country, writing about a variety of issues and covering disasters such as hurricanes and wildfires.

Slasher flick

Can Germany’s biggest lender survive on its own?

A lot will depend on the success of Deutsche Bank’s restructuring plan



EARLIER THIS month, following the collapse of merger talks with Commerzbank in April, Deutsche Bank’s share price hit the lowest point of its 149-year history. Fitch, a credit-rating agency, cut the bank’s rating to two notches above junk. In May Christian Sewing, its chief executive, promised “tough cutbacks” in the ailing investment-banking business, with plans to be laid out alongside half-year results on July 24th. But on June 16th a leak in the Financial Times revealed the outlines.

The cuts (which Deutsche has not confirmed) go well beyond its investment-banking arm. Its rates and equities trading business outside Europe will be trimmed, and a “bad bank” created to hold non-core assets that generate little or no revenue. At up to €50bn ($56bn), that is a sizeable chunk of Deutsche’s risk-weighted assets. Cuts to the underperforming trading operations had been expected, but the idea of a non-core unit is new. Like several other big banks, Deutsche had shoved €128bn of debts into a bad bank in the wake of the financial crisis.

After years of restructuring, it is hard to see how on earth it still has dud assets on its books. But apparently so.

Can the moribund Teutonic giant be shaken back into life? After the leak its share price rose 2%, only swiftly to sink again. Investors fear the changes are too little, too late. Deutsche’s biggest problems are a failing investment-banking arm, high funding costs and the lack of a reliable profit generator, such as the private-wealth management units that keep Swiss banks going through lean years. Mr Sewing’s restructuring plan does little to address any of these except the first.

Moreover, they are harder without profits. The firm cannot take big upfront losses. “Deutsche Bank cannot afford radical change,” says Daniele Brupbacher at UBS, a Swiss bank (and rival to Deutsche). Under Germany’s strong labour laws, slashing headcount would mean stiff social-insurance payments. Offloading dud assets is expensive, too. Deutsche’s post-crisis bad bank made losses of €14bn.




The retrenchment marks a definitive end to Deutsche’s aspirations to become Europe’s Goldman Sachs. Now it would settle for being a German version of BNP Paribas, a French universal bank with most of its activities in Europe. As well as a slimmed-down corporate and investment bank, Deutsche will still have Germany’s biggest retail bank (plus retail operations in Italy and Spain) and DWS, a solidly performing asset manager. But it is quite a comedown from the 1990s, when it took on Wall Street and, for a short time, became a big player in global investment banking.

Many in Germany see the plans as a last-gasp effort to remain independent. UBSand ING of the Netherlands have already signalled their interest in merging with Deutsche. A takeover by a foreigner would be a big blow to German pride.

A lot will depend on how fast Mr Sewing can put his proposals into action. The leak is likely to force him to come clean about the details earlier than he had planned. They will probably include yet another purge of senior managers. According to the Frankfurter Allgemeine Zeitung, a daily, he might start by firing Garth Ritchie, the boss of Deutsche’s investment-banking unit. In the new cost-conscious era Mr Sewing could take over—and run the sickliest division of an ailing bank. That may be an even more difficult task than it sounds.