
Deutsche Bank: Germany's Financial Colossus Stumbles - kushti
http://www.theguardian.com/business/2016/feb/10/deutsche-bank-germany-financial-colossus-stumbles
======
vegabook
Deutsche Bank is counterparty to 55 _trillion_ euros of derivatives contracts
(about 65 trillion USD). I worked for 3 years on its trading floor. It was
Sales-a-gogo. "Print as much as you can". It's one of the very biggest
counterparties to derivatives. Imagine if there was basis risk of only one
tenth of one percent on those books (ie hedge imperfection usually due to a
third factor such as credit quality or geographic mismatch). That would mean a
P&L of 32.5 billion dollars. For risk on only one thousandth of the notional
value of its derivatives books. Deutsche Bank is only worth 22 billion
dollars.

Now of course such P&L could be positive too, but inevitably, when the wolves
of the markets start hunting, they'll seek out the positions that are "wrong
way". Let alone if DBK starts to try to unwind some of these derivatives. I
bet it wouldn't be able to unwind even 2% (1.3 trillion!) of the books without
blowing itself up.

I think this bank is Exhibit A to the catastrophic excesses of the past 20
years.

~~~
mohawk
You've hit the nail on the head, the derivatives they have on their books are
massive compared to shareholder equity. "Counterparty risk" are the words
nobody analysing bank's derivatives positions wants to hear.

It's a terrible mistake there has never been a separation of investment
banking from commercial banking in Germany (i realise the line is hard to
draw), because the German taxpayer is essentially guaranteeing this shoddily
run bank.

Unfortunately German politicians seem to be quite oblivious to this problem.
Joe Ackermann (then CEO of DB) was giving Merkel advice on the financial
crisis of 2008, so there seems to be some asymmetry of information there...

~~~
binarray2000
Not only giving advice: "Deutsche Bank boss throws party, Merkel foots the
bill" ([http://www.dw.com/en/deutsche-bank-boss-throws-party-
merkel-...](http://www.dw.com/en/deutsche-bank-boss-throws-party-merkel-foots-
the-bill/a-4596587)).

------
_Codemonkeyism
German media makes a point that Deutsche Bank has been hit hard with the fines
from their (past) crimes. Investment bankers and CEOs took their bonuses and
moved on. Spiegel reports Deutsche Bank used $15 billions since 2012 for legal
disputes.

~~~
Hermel
I wonder why there isn't more resistance against the exorbitant fines the US
charges European banks every year. These fines have become a significant
business risk and should be regulated in free trade agreements, just like
subsidies are limited in such agreements. For many European banks, the US
business is a money drain, i.e. it costs them more than they get from it.
However, they cannot escape US regulation and legal exposure as long as they
want to have the ability to trade US dollars. In the end, this is a hidden tax
the US charges on all banks world wide, just because it is powerful enough to
do so.

~~~
JetSetWilly
US Regulators fine all banks in the US that they catch flagrantly breaking the
law. They don't just fine European banks - have a look at how much they have
fined the likes of JPMorgan or BoA over the last few years.

Likewise, regulators in Europe dish out fines a-plenty. The FSA certainly did
over the LIBOR scandal recently.

European banks could mitigate risk in the US by trading legally or by ceasing
trading there at all. If they really think they can't trade legally then their
business is not welcome.

~~~
zmb_
It's not the regulators, it's the prosecutors in New York, who have
jurisdiction over the European banks since USD transactions are cleared there.

The problem is that banks absolutely cannot afford to risk going to court,
since losing a case could mean losing their ability to deal in USD, which
would be the end for them. That means that the banks _must_ settle any case
brought by the prosecutors. The prosecutors in New York have used this
leverage to squeeze billions in settlements from the European banks. The
"justice"system has basically turned into what amounts to a protection racket.

~~~
pizza234
With "protecting" you mean for example protecting the money laundering
business in Mexico?

Your perspective is too generalized, thus ultimately false. The case depends
on the size of the bank.

In the case of a famous British bank, the prosecution literally stated that
they could _not_ prosecute the bank because it would have been too much of a
big impact on the economy.

They got fined with the equivalent of a few weeks of profit, and who knows how
much they ever profited from such illegal activities.

Doesn't sound a protection racket to me.

------
JumpCrisscross
Maybe now we'll finally get eurozone-wide mutualised deposit insurance.

~~~
testerooooooo
Yeah, that will solve it. Just like the eurozone money solved all the problems
15 years ago.

~~~
Findeton
Precisely part of the problem was to give everyone the same currency but make
every country fight each other for debt.

~~~
cmdkeen
More precisely everyone got the same currency but didn't have to actually live
by the stability pact. The politics of Euro membership were more important
than the reality. Greece should never have been allowed to join, France and
German routinely ignored the Stability and Growth pact.

The problem with DB is that Germany cannot let it fail because it underwrites
its export economy, plus it would be a national humiliation. However bailing
it out after imposing austerity on the PIGS, especially Greece would pour fuel
on the fire of anti-German sentiment in the EU.

------
simi_
Moving from the UK to Germany, I chose Deutsche Bank based on its reputation.

Pros:

* English! There is always someone on the phone who can speak English, and they can even send their letters in English. (for Germany, this is very rare)

* More "high touch" \- there is a person assigned to your account

* I can't remember if this was the case in UK, but I noticed that transfers to some Western EU countries have no fees and happen almost instantly. Yay!

Cons:

* Buggy app and web interface, sometimes the login fails or hangs randomly (revenue was €31.95 billion in 2014, it's understandable that they can't afford spending too much on this)

* The way to authorise online transactions is with a piece of paper with 100 codes printed on it (TAN list). This was a shock, but it's apparently common here.

* Taking advantage of new customers. They offered me a loan which I later realised had a ridiculous interest rate. (I guess this isn't exclusive to DB, but silly me expected that a good, more prestigious bank would value longer term customer relationships)

* Stupid useless cards. The default account (€5/month) comes with a card (EC Karte) that can only be used at German ATMs and in most German stores. Good luck trying to do anything online with it. For that you need a credit card (extra €5/month), the very idea of something like VISA Debit seems completely alien to Germans.

~~~
Udo
I'm a (german) DB customer as well, and I can't say I share a lot of these
experiences.

> _Buggy app and web interface, sometimes the login fails or hangs randomly_

This never happened to me, maybe I'm just lucky. There used to be a problem
with the web interface when you entered the banking system's URL without
"[https://"](https://") but that's not really the same.

> _The way to authorise online transactions is with a piece of paper with 100
> codes printed on it (TAN list)_

I think the TAN list is just there to get you started (and for some
technophobic Germans). I used it to set up SMS TANs immediately, and I think
there is still an option for a dedicated TAN generator device (at least there
used to be). Don't use the TAN list!

> _Stupid useless cards. The default account (€5 /month) comes with a card (EC
> Karte) that can only be used at German ATMs and in most German stores._

An EC Card is _the thing_ you need to go shopping in Germany. It's entirely
appropriate for this country, and contrary to what you claim it works just
fine internationally (at least mine does). While it's true that some banks
offer a separate VISA credit card, it shouldn't be a problem for you to get
one elsewhere. As for VISA debit cards, I'm not sure if those even exist in
Germany.

~~~
StudyAnimal
Actually most of the time German VISA and MasterCards work as a debit card.
Payments are cleared from your checking account / Giro, instantly or nightly,
so you are never really in debt, rather than being a second account that is
always negative and partially or fully paid off each month. I am not sure
which type is more common, but I usually ended up with the debit card style.

------
aluhut
> Headquartered in the same city as the bank, the newspaper said

I thought their HQ is in London.

~~~
Libermentix
the bank is headquarted in Frankfurt:
[https://www.db.com/en/content/Imprint.htm](https://www.db.com/en/content/Imprint.htm)

As far as i know the Investment Banking branch mainly operates from out of
London.

------
whatok
Just announced that they're tendering for EU3b, $2b debt, stock up 11%

------
jgreen10
Well, Germany has been allowed to act as the emperor with no clothes for a
while now; an economic powerhouse sitting on empty pension chests with an
ageing population.

To compare pension fund assets:

    
    
        US: $46k/capita
        UK: $42k/capita
        Netherlands: $76k/capita
        Germany: $2.9k/capita
    

[http://www.oecd.org/finance/Pension-funds-pre-
data-2015.pdf](http://www.oecd.org/finance/Pension-funds-pre-data-2015.pdf)

~~~
wobbleblob
My colleague from Greece has been giddy as a schoolboy about this story all
week. Not quite the roaring, thunderous fits of laughter as with the
Volkswagen scandal, but this is still developing.

~~~
Kristine1975
I'm from Germany and the troubles of the Deutsche Bank please me to no end.
The only thing I'm scared of is that it will be declared "too big to fail" and
bailed out with tax money, while at the same time there's no money for
schools, police, refugees etc because Wolfgang Schäuble is obsessed with his
"black zero".

~~~
patrickk
As an Irish person living in Germany (partially as a result of an extremely
ill-advised bank bailout), it's quite amusing to watch. I've watched this
_exact_ scenario happen in my own country, except with retail "pillar" banks
instead of investment banks. I compare bankers to the monarchy of old, they
are completely unelected and hold a huge amount of power.

You can be sure that if the shit really hits the fan, Deutsche _will_ be
bailed out, no matter the cost. I would bet anything on this happening.

~~~
Kristine1975
_Deutsche will be bailed out, no matter the cost. I would bet anything on this
happening._

The bank always wins :-(

------
chvid
Germany led by Merkel has set itself up for trouble.

Cyprus and Greece have created a precedence for creditor bail-ins. Public
finances are stretched due to refugee inflows and opposition to Merkel is
growing even internally in her massive coalition government.

This setup may lead to something not predicted (ie. DB not getting the
guarantees it needs or even a creditor bail-in) or more predictively the rise
of left or right-wing non-established / populist politics.

~~~
DangerousPie
Public finances are only stretched because the German government (and the
electorate) has a weird aversion to taking on new debt. If she wanted to,
Germany could essentially borrow money for free thanks to extremely low or
even negative interest rates.

~~~
kriro
1) I'd hardly call them stretched. 2) I wouldn't call it a "weird aversion".
Weimar Hyperinflation (and the consequences) is still in the public's heads.
Compared to other places I have lived people in Germany are indeed more
reluctant to debt-finance things in general and "save before buying". I think
it's a fairly healthy base attitude (but I'm probably biased being German).
It's less valuable currently with near 0% credits everywhere but as a base
mindset it helps avoid the trap of not finding a way to generate the expected
revenue streams eventually.

