A major crisis fall upon the Deutsche Bank, Know how?
The Deutsche Bank is all suffering from a mess of financial ruin, it’s taken about 10 years and a series of disastrous unfortunate events, but now Deutsche Bank is suffering dangerously , its Its shares have lost more than 50 per cent this year, in fact they’re down 20 per cent just this month, and hedge funds have begun pulling money out of the 147-year old institution.
Investor fears have spilled over into the Australian market because Deutsche Bank is considered a “globally systemically important bank”. Its collapse would have widespread repercussions as its sales are equal to roughly 12 per cent of the entire eurozone’s GDP.
Last week, the German bank revealed the US Justice Department is demanding a $US14 billion ($18.3 billion) penalty payment to settle an investigation into residential mortgage-backed securities the bank traded before the 2008 financial crisis.
Deutsche Bank CEO John Cryan
The fine is more than double the money Deutsche Bank has set aside for litigation, prompting investors to speculate the German government might have to step in to help. Now Berlin is faced with an inordinately awkward question: does Deutsche Bank have enough capital to withstand the market’s gyrations, or will authorities have to bail it out, something the Merkel government has publicly rejected?
This is how problem with Deutsche Bank’s starts
Most observers point to the Libor scandal, for which the bank was fined $US2.5 billion in April 2015. This involved a handful of Deutsche Bank employees – traders, managing directors and a vice-president across Europe, North America and Asia – who were charged with rigging the London Interbank Offered Rate (Libor) between 2004 and 2015.
Libor is the rate banks charge each other for short-term loans, and is set by a panel of 16 global banks. It is tied to trillions of dollars in securities and loans. For a period of 11 years, these Deutsche Bank employees artificially inflated the rate to boost the value of their trading books.
This was a helpful racket, because the bank was actually hiding $US12 billion in losses to avoid a government bailout following the global financial crisis. While the rest of the world watched in horror as Lehman Brothers collapsed, Deutsche Bank’s then CEO Josef Ackermann announced the bank had plenty of capital to withstand the shocks.
How many times has Deutsche Bank been fined?
Almost three, if you count the most recent demands from the US governmentTwo weeks after the Libor scandal at the end of last year, the German bank was fined again for doing business with countries that were under US sanctions between 1999 to 2006.
Countries including Iran, Libya, Syria and Sudan were severely restricted because of Iran’s nuclear program and widespread human rights abuses in the region. The United States had also prohibited doing business in countries it deemed havens for possible terrorist financing.
On November 5, 2015, the bank was charged $US257 million for those dealings. With hindsight, they appear now to be like the beginning of the end, setting off Deutsche’s downward spiral. Yet, the bonds haven’t converted into shares, but their trading volumes has soared in September to levels more than seven times those in August. So people are passing them around, just in case the bank’s capitalisation falls below the required level that would trigger their conversion into shares.