DEUTSCHE BANK: WILL THE BANKRUPTCY OF THE GIANT BANK LAUNCH A NEW WORLD CRISIS?

DEUTSCHE BANK: WILL THE BANKRUPTCY OF THE GIANT BANK LAUNCH A NEW WORLD CRISIS?

DEUTSCHE BANK: WILL THE BANKRUPTCY OF THE GIANT BANK LAUNCH A NEW WORLD CRISIS?
The largest German bank is going through hard times, mired in "toxic" assets. The representatives of the World Monetary Fund, meanwhile, call Deutsche Bank the biggest problem for the global financial system. But can its bankruptcy really have serious consequences for all countries, and is there a fear of a repeat of the banking crisis of 2008?

A story of deception

Deutsche Bank has the honorary status of the largest credit institution in the European Union, but despite huge momentum, the bank is on the edge of the abyss. Deutsche Bank has the active support of the German government, and advertising says that this credit institution is almost a synonym for the word "reliability." But how are the things really going on?

To begin with, Deutsche Bank did not have any annual losses since the Second World War. Half a century of impeccable success added confidence to German bankers, they began to use modern financial instruments, collateralized debt obligations in particular, issued in the amount of tens of billions of dollars. These debt obligations did not stay at the peak for a long time and rapidly flew down to the bottom with the crisis of 2008. And since Deutsche Bank invested the maximum amount of its funds among all credit organizations in them, the credit institution itself received an immeasurable impact .

Thanks to the crisis, all the abuses of the bank became known about. The largest lender of the European Union did not disdain fraudulent schemes and illegal operations with mortgage securities. Manipulation of interest rates, money laundering and even violation of US sanctions (in particular, against Iran) have emerged. The revealed facts cost the multibillion fines and a serious blow to the banks reputation, let alone debt obligations we mentioned above, the losses from which gradually drove the bank into crisis.

We cannot but mention the fact that after the global crisis, a decent shortfall of 12 billion euros was discovered at Deutsche Bank. But the banks manager Joseph Akkerman was not that willing to share this unpleasant fact with the public, and distorted the documentation, at the same time deceiving the shareholders. The latter were sure that the funds were more than enough.

The end of Deutsche Bank's reputation

And now we turn to the specific cases of abuse of "DB". It is worth noting that until 2010 it had an impeccable reputation, but then the bank started to become less and less successful year by year.

The year 2012. The US Prosecutors Office opened a judicial investigation against a bank, selling toxic papers. As a result, the bank got a fine of $ 7 billion. Then there was the scandal in 2012, when it turned out that Deutsche Bank is fond of manipulating LIBOR (the London rate at which banks give loans to each other to maintain liquidity).

Many financial organizations were involved in this story, but it was DB that turned out to be one of the most active fraudsters. For this, the bank got another fine, this time of 2.5 billion dollars. What is more, the court ruled that it is necessary to dismiss the leading authotities of the bank, involved in the conspiracy, but in reality no one was fired.

The dark deeds of the "Deutsche Bank" did not end here. In 2017, the organization came across money laundering using mirror deals. It is interesting that such deals were implemented through Russia: DB was buying shares in the Russian market for rubles and was almost simultaneously selling them in the similar volume in the UK for dollars. It is estimated that in this way more than $ 10 billion was withdrawn from Russia. A new fine followed ($ 600 million) and, again, an urgent demand to dismiss the bank's managers but this did not happen again.

And finally, a violation of US sanctions in recent years. Deutsche Bank managed to crank out a mass of illegal operations by $ 10 billion. Once again, a case was instituted on the bank; for its termination, the bank had to cough up a huge sum of money - $ 260 million.

No wonder that, after all these scandals, DB lost its former reputation, and investors, customers and partners became less willing to do business with it.

The main problems of Deutsche Bank

But, as it turned out, the main reason lies not even in fraud, but in the book of derivatives - so called derivative financial instruments on the balance of the company. In other words, toxic assets that destroy the bank from the inside. It is interesting that management under no circumstances agreed to publish the list of them it is only known that these contracts were signed before 2008.

Unfortunately, Deutsche Bank is hiding its losses. The public learned about their existence in 2018 and their amount is at least 60 billion euros - this is the amount announced by former director John Crian last year. Moreover, it was only one of the cases, most likely, there are much more.

Restructuring of Deutsche Bank

In July, Christian Zeving, CEO of Deutsche Bank, announced a big restructuring plan to save the bank. For the benefit of the bank, the management decided to lay off 18 thousand (!!) employees and create a bad bank for all illiquid assets, which have accumulated billions of euros. In general, Deutsche Bank should become much more modest and reduce investment activities. More precisely, the management of DB decided to make it corporate, with an emphasis on asset management and private banking.

In the whole process of restructuring, the investment cluster will suffer the most - its activities will stop almost completely, as most of the laid-off employees are the representatives of it.

The restructuring of Deutsche Bank is expected to be completed by 2022. The organization made the corresponding decision after an unsuccessful merger with Commerzbank (another leader in the German banking sector). The German government liked the plan, but its implementation was impossible. During the negotiations, both banks found that the merger would cost more than any potential benefits.

Deutsche Bank and the global crisis

The 2015th, 2016th and 2017th years "DB" ended with losses: 7 billion, 1.5 billion and 700 million dollars, respectively. Based on these reports, the World Monetary Fund sounded the alarm, calling Deutsche Bank the most dangerous of the existing banks. The fact is that a package of securities produced by a credit institution is valued at 46 trillion euros - an unprecedented amount exceeding the GDP of all of Germany by 14 times. The toxicity of these papers has not been established for certain, and therefore they can at any time become a detonator of the global economic crisis.

There is one more negative outlook. Deutsche Bank deposits have more than 500 billion euros, and if, after the next report on banking problems, depositors rush to withdraw money, the bank will inevitably be in a crisis, pulling the entire financial system along (a similar situation destroyed the Russian MFO Home Money) .

Analysts compare Deutsche Bank with the American Lehman Brothers, bankruptcy of which in 2008 collapsed the entire world economy. These words definitely make sense, especially considering the fact that the German sector plays an important role in the overall financial system. Taking into account the debts and toxic assets of Deutsche Bank, we can confidently say that it is actively moving towards bankruptcy. But will they let it go bankrupt? If this happens, a deep financial crisis awaits Germany and the entire European Union, which means there is a chance that all efforts will be thrown to save DB. Will there be any results? Time will tell.

 


17.12.2019





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