Europe’s biggest investment bank, Deutsche bank, is in big trouble. This Sunday it will announce a major restructuring. It’s also a harbinger of a bigger problem with European banks in general, which are loaded with trillions of euros in non-performing bank loans they haven’t been able to shed since the crisis of 2008-10 (and subsequent Eurozone double dip recession of 2011-13).
Deutsche, the biggest, is among the worst shape, much like the largest Italian banks. Deutsche soon will announce this Sunday, according to reports, a 20,000 cut in jobs, as well as asset sales of entire divisions, as it pulls out of the US and other economies and consolidates back to Germany. (It formerly tried to challenge US investment bank giants, Goldman Sachs and Morgan Stanley, by acquiring the large US bank, Bankers Trust, several years ago but has now clearly lost out in that competition and is trying merely to survive.)
But even before the next financial crisis hits Europe, which is coming soon, Deutsche is already in the process of being ‘bailed out’. One means of bail out is forcing a merger with another large bank. That was recently attempted by the German government, with German Commerz bank, but the effort failed. Another bailout measure is to get the bank in trouble to raise capital by selling off its best assets. Now firesales of its better assets are underway. Another approach is to set up what’s called a ‘bad bank’ in which to dump its non-performing assets. That’s going on with Italian banks. But those solutions may not be enough should the bank’s stock price collapse further even more rapidly. At only $7 a share now, speculators could soon jump in and drive it to near zero, as what happened in the month preceding Lehman’s collapse.
Like Lehman in 2008, another major problem with Deutsche is the composition of its risky asset portfolio of derivatives contracts undertaken in recent years and the potential for it to precipitate a global ‘contagion effect’ should its financial condition worsen rapidly.
Deutsche currently holds $45 trillion in derivative trades with other institutions. And some sources and analysts are beginning to compare it with the Lehman Brothers investment bank collapse in 2008 in the US.