Deutsche Bank Fails to Cut Deal with Department of Justice, But Deutsche Bank Isn’t Lehman, So It’s Okay

All of the reports of ‘imminent deals’ being made, reported by citizen journalists on Twitter, have turned out to be complete and utter horseshit. Surprisingly, the DOJ isn’t bending to the will of Merkel, most likely due to the EU clown slapping of Apple. That being said, Deutsche Bank now finds themselves in a terrible set of circumstances, with a $14b fine and just $6b in reserves. With the stock higher by 14% over the past two weeks, and more than 30% from the lows, look for that shit to get rescinded in the most violent of ways.

Via Bloomberg

Deutsche Bank AG Chief Executive Officer John Cryan failed to reach an agreement with the U.S. Justice Department to resolve a years-long investigation into its mortgage-bond dealings during a meeting in Washington Friday, Germany’s Bild newspaper reported.

The meeting was meant to negotiate the multi-billion-dollar settlement the bank will have to pay to resolve alleged misconduct arising from its dealings in residential-mortgage backed securities that led to the 2008 financial crisis, according to a Bild am Sonntag report.

The German lender is still considering seeking damages against Anshu Jain and Josef Ackermann, who are both former CEOs of the bank, the newspaper reported. Bild said the bank froze part of the millions in bonus payments to Jain and other former top managers.

A Deutsche Bank spokeswoman declined to comment to Bild about the outcome of Cryan’s Friday discussion or about clawing back former executives’ compensation. Mark Abueg, a Justice Department spokesman, declined to comment.

Now I understand that Deutsche Bank isn’t Lehman. As a matter of fact, it’s much worse than Lehman. From my vantage point, short sellers will be going into DB, very heavily, like a bitch (Extra Trump), first thing Monday morning.

Via Zerohedge

Deutsche Bank’s position is currently marginal as it is woefully undercapitalised and has no clear prospect of becoming meaningfully profitable. As the world’s largest derivative trader and Europe’s most systemically important bank this is untenable. Deutsche Bank is three times larger than Lehman Brothers, making the possibility of an unexpected and uncoordinated failure completely unacceptable. Deutsche Bank needs substantial time and capital to execute a turnaround, neither of which it now has. It does not have the profitability to grow its capital base quickly or to support a capital raising of the size it needs. Deutsche Bank needs either a bail-in or a bailout.

An orderly bail-in process would deliver Deutsche Bank the additional time and capital it needs. In the first instance, the bank should be declared non-viable with all equity, additional tier 1 and subordinated debt written off. By converting 63.1% of long term senior debt to new equity the leverage ratio would increase to an unquestionably strong 9%. Based on recent peer comparisons, bailed-in senior debt holders would receive a recovery of at least 94% of their current position. Using an IPO model, where management develops and presents a new strategy to potential investors over a 2-3 month period, would allow the recipients of newly issued equity an orderly process to sell-down their equity. It also creates the possibility of a substantial recovery for subordinated debt, additional tier 1 and equity investors.

If the Lehman playbook continues to play out as it has done – denials of any problems… blame speculators… unleash short-squeeze on heels of rumors of foreign sovereign wealth fund investments… and finally acceptance – this will not end well…