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Deutsche Bank and Lehman: two banks – one destiny

Deutsche Bank и Lehman: два банка - одна судьба

Last year and early this European financial giant Deutsche Bank is under scrutiny by the investment community. Many argue that the Bank is on the verge of collapse, and its collapse will lead to financial disaster.

And here on Monday evening, news agencies published news that rating Agency Moody’s Investors Service raised the Bank’s rating on review for possible downgrade.

The Agency experts note that after the change of leadership of the organization in June of 2015 and adjustments to the strategic plan in November, the operating environment for the Bank worsened. These factors, said Moody’s, hinder the solution of problems faced by Deutsche Bank.

The news itself is a special resonance does not cause the market already understands how serious the problems of the largest Bank in Germany, however, gives reason to conduct further Parallels with the fate of Lehman Brothers.

First, recall that in mid February the cost of insurance against default of Deutsche Bank reached a historical maximum. Approximately the same situation was and with CDS shortly before the Lehman bankruptcy.

The German giant has tried to reassure investors by promising to buy back their bonds at several billion euros. In the management of the Bank noted that the decision to buy back debentures was made with the aim of reducing investor concerns about the financial condition of Deutsche Bank.

The Deutsche Bank situation turned even worse after the publication of statements for the fourth quarter and 2015 as a whole. The Bank, in particular, has informed that for 2015 was to net loss in size was 6.77 billion euros compared with a profit of 3.11 billion euros a year earlier. This is the first annual loss Deutsche Bank since 2008

Earlier, the head of Deutsche Bank John krajan said that the Bank in 2016 is unlikely to go on profit.

The Bank’s shares since mid-February, of course, a little older, like the rest of the market as a whole, but fundamentally it changes nothing.

Comparing the dynamics of the Deutsche Bank and now shares before the Lehman Brothers bankruptcy in 2008, you can find obvious similarities.

Recall that in the period from may to June 2008 Agency Standard & Poor’s downgraded the ratings of the largest banks, including Merrill, Lehman and Morgan Stanley.

The amount of funds on Deposit with the ECB increased by 6 times

Negative Deposit rates are quite different, as would be desirable for Mario Draghi. Since the introduction of the new instrument amount of Bank funds deposited by the ECB, increased by 6 times.

Just a couple of years, the total assets of banks in the Eurozone increased to 646 billion euros, but only 15% of this huge amount has gone into the real economy. All the rest of the money settled on the deposits of the regulator. Meanwhile, the ECB for the first time in its history has introduced negative rates in June 2014, to the financial sector increased lending, and did not carry the funds. After the sovereign debt crisis and recession “double bottom” in the banks in the Eurozone remains a significant share of “bad” debts, in consequence of which they are not eager to issue new loans.

Himself Mario Draghi probably notice that the measures are not too effective. That is why the ECB President at the last meeting suggested that (under certain conditions) to pay commercial banks for the loans taken by the regulator. However, Jan Schildbach, senior analyst for financial markets at Deutsche Bank, believes that that is not enough. Eurozone banks have very low profitability, and lending to the real sector, they still will not be.

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