www.armstrongeconomics.com
Ten of the large hedge funds
are withdrawing from Deutsche Bank. What must be understood here is
that Deutsche Bank is the main clearing house for trades in Europe. The
problem the hedge funds have is where do they move for clearing?
Short-term, they can move to New York or London. With over $60 trillion
derivative book at the Deutsche Bank, the government is totally
incapable of even understanding how to deal with this crisis. We are
looking at a major crisis in confidence.
Merkel is simply out of her mind to adhere to this insane policy of a
bail-in. How can hedge funds stay with clearing at Deutsche Bank when
she takes this position that would set off a catastrophic global
meltdown. It still appears that Merkel will have to blink. Once people
realize this is the real crisis, then the German debt market should turn
down rather hard.
The pressure is clearly building based upon how my own phone is
melting down. This illustration based upon IMF data, illustrates the
global contagion. I “BELIEVE” that Merkel will be compelled to blink. We
may see an announcement this weekend at the latest where she must
address this issue. The implications of a global contagion go far beyond
Germany.
Investors in Deutsche Bank are obviously looking to Merkel and
whether or not she will step up to the plate here. DB shares have
plummeted more than 50 percent this year. The prospect of bailing out
Deutsche Bank is particularly a problem when Merkel seeking a fourth
term in an election next year. Her view is to hold to what she took as a
position. Hence, must the world suffer for her personal political
career once again?
The EC attack on Apple has led to a backlash where the US Justice
Department in retaliation wants a multibillion-dollar fine from DB. This
is also contributing to the problem of DB being in the cross-hairs of
US prosecutors who also seek to further their political career not
unlike Merkel.
Merkel’s spokesman said the government sees “no grounds” for talk of
state funding for DB. This simply cannot stand in the face of a major
global contagion. The government would have to step in if Deutsche Bank
was really in major trouble and hedge funds reducing exposure are
abandoning the bank. You can bet by tomorrow, every bank will be trying
to reduce their exposure to DB by the weekend.
John Cryan, Deutsche Bank’s chief executive officer, has come out
publicly saying that raising capital “is currently not an issue,” and as
far as a bailout from government, he has stated Merkel’s position that
such support is “out of the question for us.” This entire crisis is
actually set in motion by Merkel who championed to keep taxpayers off
the hook in a crisis. She pushed for bail-ins and not bail-outs and this
has made it far more difficult for governments to support banks in
Europe. The Bank Recovery and Resolution Directive, which is the
cornerstone of Europe’s efforts to tackle too-big-to-fail banks, takes
the position that the need any such extraordinary public financial
support indicates that a firm is “failing or likely to fail,” that will
trigger the resolution. Now, support for banks is highly restricted and
has devastated Greece, Italy, and Portugal. Consequently, if Merkel now
intervenes on Deutsche Bank’s behalf, she is basically saying the law is
for everyone else but Germany. That will lead to internal protests
within the EU.
Internationally, if Merkel’s governing coalition does not step up to
support Deutsche Bank, the political fallout globally will in itself
cause a major crisis probably by November. Clearly, the need for some
sort of state intervention would outweigh calculations about the
political fallout. Merkel will cause the international chaos if DB fails
and it can fail if this bank run continues. DB needs to be restructured
but when it is the biggest in Europe, it cannot be merged as a shotgun
wedding. Its business must reduce risk for itself and the connection of
other banks. The German government could assume a stock investment. The
legal restrictions prevents extraordinary support as state aid that
would distort competition by favoring one company over another. Under
the EU law, the German government could just take an equity stake. That
would not be a bailout in the classic terms that Merkel opposed. It must
be carried out at current market conditions. They cannot arbitrarily
supply money at some agreed upon share price that is away from the
market.
One loophole under EU regulation would allow Merkel bailout DB
provided it is only to “remedy a serious disturbance in the economy of a
member state and preserve financial stability.” This must be only a
temporary measure. This would qualify and she can claim that she is
following the EU law and it is not different from country to country.
However, EU state-aid rules require junior creditors and shareholders to
share losses. Therein lies the problem of a global contagion.
If Merkel actually tried to inject government funds into Deutsche
Bank or purchase its capital instruments, it may do so only if there is
a capital shortfall identified. Still, there must be no advantage to DB
from a competition perspective. The interesting problem that would
emerge, highlights the clearing crisis. The European Union would then
NEED British banks for clearing. In the face of BREXIT, they are not
likely to concede that at any time, so there is another nail in the
coffin of the euro.
on.cc東網專訊
【on.cc東網專訊】
外媒報道，有「新債王」之稱的DoubleLine Capital行政總裁岡拉克(Jeffrey Gundlach)表示，投資者對金融市場應對金融市場採取防守性取態，因為市場拋售似乎尚未結束。
他續指，其中，德意志銀行的股票及債券或繼續下跌，直至出現一個支持位為止。
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