Saturday, October 8, 2016

Deutsche Bank CEO Returns Home Empty-Handed After Failing To Reach 'Deal' With DOJ: Bild

http://www.zerohedge.com/news/2016-10-09/deutsche-bank-ceo-returns-home-empty-handed-after-failing-reach-deal-doj-bild?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29


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.
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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...

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