English
The biggest German bank has been forced to reassure its investors that it can meet its liabilities this year, including the coupons for the convertible bonds issued to raise tier I capital.
The midnight press release came as the price of these capitalization instruments (author's note: known as CoCo) has collapsed since the beginning of the year, amid an increasingly low liquidity.
After falling below the cap of 75% of the face value, the CoCo bonds issued in Euros with a coupon of 6% have continued their decline, reaching a new low, of 70.73% of their par value, according to the Berlin Stock Exchange quotes.
DB stock have fallen over 40% since the beginning of the year, as shown by Bloomberg data, to 13.4 Euros, close to the historic low reached in the beginning of 2009.
The low liquidity of the convertible bonds has caused investors to look for more instruments which would allow them to "bet" against DB or to seek protection for the bonds they hold. Thus, the CDS quotations for Deutsche Bank have seen a new explosive rive and neared 240 basis points, a level which has only been reached in 2008.
Since the promise to honor the payment of coupons for convertible bonds has not been enough, the executive management of the bank came with new optimistic messages.
In a letter to the employees, John Cryan, co-chief executive of the bank said that "Deutsche Bank AG is absolutely solid as a rock", according to Bloomberg.
But the market still didn't want to believe in "miracles". Under these circumstances, even a notable German government official has expressed his faith in DB.
"I am not concerned about Deutsche Bank", Wolfgang Schaeuble, the German Finance minister, told Bloomberg, in a press conference in Paris.
Without openly expressing their trust in DB's ability to weather this period's turmoil, Jens Weidmann, the president of the Bundesbank said that "there are no reasons to paint a gloomy picture", even though he has admitted that "the economic sky is cloudier than it was a few weeks ago".
As Financial Times writes, CoCo instruments are the riskiest bonds issued by banks, and the par value of the bonds issued in Europe is 95 billion Euros, while only one quarter of them have an investment grade rating.
The collapse of the price of convertible bonds has not been confined to Deutsche Bank. Those issued by Santander and UniCredit have fallen to 85% of their par value, and 76.3% respectively, according to data from the Financial Times, which wonders whether "the evolution of the price of CoCo bonds is a signal or a cause of bank problems".
Trading of UniCredit shares has been temporarily halted yesterday in Milan, after the announcement of its financial results, following a drop of more than 6% of its stock. The drop continued after the resumption of trading, and the stock of the biggest Italian bank fell over 7% since the beginning of the year and has dropped over 45% since the beginning of the year, according to Bloomberg data.
Also seen has been an increase of the spread between 10-year government bonds of Germany and Italy, to 150 basis points.
This negative dynamic can represent the first stage in the contagion spreading from the banking system to the government bonds market.
An analysis by Wall Street Journal states that "DB is not facing a liquidity crisis, but the concerns over the capitalization are justified".
These concerns are equally justified for most systemic importance banks in Europe, and the European Central Bank can not stop the phenomenon simply using the current quantitative easing program.
Will the ECB start the printing presses for the acquisition of CoCo bonds as well?
JIM WILLIE, ANALIST:
"The collapse of Deutsche Bank could cause a contagion the likes of which has never been seen before"
• "Deutsche Bank can not fall just fall by itself, it will wreck the European Union"
A potential collapse of the biggest German bank, "Deutsche Bank" AG, could cause a contagion among systemic banks the likes of which the Western world has never seen before, according to the publication Silver Doctors, which quotes analyst Jim Willie.
He claims that as banks in the Eurozone are now showing new signs of crisis, "Deutsche Bank" is under a major threat, as it could be the first major bank to collapse in the next phase of the banking crisis.
In his opinion, unlike the collapse of "Lehman Brothers" in the US, in 2008, a bankruptcy of "Deutsche Bank" could cause the fall of other important banks, from 3 to 15 of them. "One or two will fall quickly, the third and the fourth one week later, and then all the banks in Italy will be kaput", says Jim Willie, who added that right now, according to his sources, three major banks are in trouble, fighting with insolvency everyday: "Citigroup" Inc. din SUA, "Barclays" Plc of Great Britain and "Deutsche Bank".
"I think that the risk of Deutsche Bank failing pertains to LIBOR and FOREX derivatives", says Jim Willie, who warns, however, that the immediate threat for "Deutsche Bank" has to do with the hiding of the debt of the countries that have requested the accession to the Eurozone. The analyst gives as an example Greece and Italy, which would not have had their debts at certain levels if "Deutsche Bank" had not done for them the same thing that "Goldman Sachs" did: it helped the countries conceal their debts by using currency swaps (financial instruments used to protect against risks). Through these methods, international borrowers can convert their bonds denominated to other currencies through swaps, using a fictitious exchange rate, which makes the debt look smaller.
According to the quoted source, "Deutsche Bank" holds OTC swaps of 25,000 billion dollars with central banks and other major banks.
"Deutsche Bank can not fall by itself, it will wreck the European monetary union", says Jim Willie, who stresses that a potential failure of "Deutsche Bank" involves Spanish, French, Italian and Greek bonds, because it has been involved in getting these countries to qualify for Eurozone accession. That is why, the analyst says, the collapse of the German bank would be different from that of "Lehman Brothers".
We remind that "Deutsche Bank" was forced, on Monday night, to issue a statement defending its liquidity, after its shares fell 10%, to the low reached during the financial crisis. "Deutsche Bank" has assured its investors that it can pay its liabilities in 2016 and 2017, with its payment ability for 2016 being estimated at approximately one billion Euros, and for the next year - to approximately 4.3 billion Euros. (V.R.)
Jim Willie: "If Deutsche Bank falls, will follow Citigroup, Barclays, HSBC, Morgan Stanley, Société Générale. There are also major threats for JP Morgan and Goldman Sachs".
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"Deutsche Bank" AG shares fell 4.5% yesterday, to 13.29 Euros.
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Jim Willie: "If we see the failure of Deutsche Bank, then gold will rise to more than 2,000 dollars per ounce, again, and silver will exceed 100 dollars".
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At the end of January, "Deutsche Bank" announced that it had record losses in 2015, of 6.8 billion Euros, after a profit of 1.7 billion Euros in 2014, as a result of setting up provisions to cover the expenses generated by litigations and official investigations. Furthermore, the banks has been affected by the decline of the investment banking division.
The lender has set up provisions of 5.2 billion Euros for lawsuits in 2015, compared to 2 billion Euros in 2014.
Euro
Dolar SUA
Franc elveţian
Liră sterlină
Gram de aur
