DEUTSCHE BANK: events are accelerating, and no amount of élite balm can stop that development

John Cryan needs to find capital injections, and he needs to do it now

mesnip19916Security in Brussels, Berlin and Frankfurt was tighter than the proverbial fish’s backside tonight as EU leaders readied themselves for some kind of announcement about Deutsche Bank. Three developments during today have convinced a clear majority of opinion leaders that all those market forces bankers so adore are about to wipe out their Christmas bonuses….and a lot else besides:

The developments are:

  1. The sudden Dollar shortage in the eurozone area
  2. The withdrawal by several Hedge Funds of derivative trades-related collateral involving Deutsche
  3. The immediately connected fate of other eurozone/EU banks with Deutsche Bank: the bank’s problems highlight similar hurdles facing many other European banks. They involve ultra-low interest rates, a persistently sluggish ezone economy, financial-market distortions and tighter regulation.  These points were not made by any old slouch: they came from Mohamed El-Erian, chief economic adviser at German-based insurer Allianz SE – and the former chief executive of bond fund giant Pimco.

The El-Erian point seems to me key: I’ve been a fan of this bloke for many years: I’ve yet to follow his direction on a personal investment and lose.

Three months ago, The International Monetary Fund released a report saying that Deutsche Bank “appears to be the most important net contributor to systemic risks in the global banking system.”

Some will find that warning reassuring, given that the IMF under Fifi Lagarde has been consistently wrong on everything from ClubMed economic growth to the effects of Brexit. However, it looks as if this is one IMF prediction that is going to look prescient. I mean, “prescience” is relative: thousands of us here in the blogosphere have been pointing the fickle finger of f**kup at DB since 2013. But events later today (Thursday) – during New York’s afternoon – make it look as if the IMF monkeys may have finally hit the right keys.

One such development – not always picked up – is the state of put bets for November about Deutsche’s fate. They aren’t looking good for those in search of Pheonix wings rising from ashes.

When things get to this stage, the provision of liquidity to the bank in dire straits becomes the urgent that overtakes the important. Ironically, the way to get that urgent liquidity is still to do the important. With the Asian markets about to open, the important thing for John Cryan to do is make a pretty spectacular announcement about something much bigger than selling Abbey Life. The DB CEO needs to come up, over the coming night hours, with a line of capital injection that settles everyone down.

Mario Draghi’s refusal to even discuss the issue in the EU Parliament today might suggest that he is about to get involved in doing something about that.

On verra, as they say here in France.

From a January Slogpost: Why Deutsche Bank was always going to be the catalyst for Correction 3