Deutsche Bank bank run

Bank Run: Deutsche Bank Clients Are Pulling $1 Billion A Day

Zero Hedge,

16 July, 2019

There is a reason James Simons' RenTec is the world's best performing hedge fund - it spots trends (even if they are glaringly obvious) well ahead of almost everyone else, and certainly long before the consensus.

That's what happened with Deutsche Bank, when as we reported two weeks ago, the quant fund pulled its cash from Deutsche Bank as a result of soaring counterparty risk, just days before the full - and to many, devastating - extent of the German lender's historic restructuring was disclosed, and would result in a bank that is radically different from what Deutsche Bank was previously (see "The Deutsche Bank As You Know It Is No More").

In any case, now that RenTec is long gone, and questions about the viability of Deutsche Bank are swirling - yes, it won't be insolvent overnight, but like the world's biggest melting ice cube, there is simply no equity value there any more - everyone else has decided to cut their counterparty risk with the bank with the €45 trillion in derivatives, and according to Bloomberg Deutsche Bank clients, mostly hedge funds, have started a "bank run" which has culminated with about $1 billion per day being pulled from the bank.

As a result of the modern version of this "bank run", where it's not depositors but counterparties that are pulling their liquid exposure from DB on fears another Lehman-style lock up could freeze their funds indefinitely, Deutsche Bank is considering how to transfer some €150 billion ($168 billion) of balances held in it prime-brokerage unit - along with technology and potentially hundreds of staff - to French banking giant BNP Paribas.

One problem, as Bloomberg notes, is that such a forced attempt to change prime-broker counterparties, would be like herding cats, as the clients had already decided they have no intention of sticking with Deutsche Bank, and would certainly prefer to pick their own PB counterparty than be assigned one by the Frankfurt-based bank. Alas, the problem for DB is that with the bank run accelerating, pressure on the bank to complete a deal soon is soaring.

Here are the dynamics in a nutshell, (via Bloomberg): Deutsche Bank CEO Christian Sewing is pulling back from catering to risky hedge-fund clients, i.e. running a prime brokerage, as he attempts to radically overhaul the troubled German lender while BNP CEO Jean-Laurent Bonnafe wants to expand in the industry. 

A deal of this magnitude would be a stark example of the German firm’s retreat from global investment banking while potentially transforming its French rival from a small player in the so-called prime-brokerage industry to one of Europe’s biggest.

Of course, publicly telegraphing that DB is in dire liquidity straits and needs an in-kind transfer of its prime brokerage book would spark an outright panic, and so instead the story has been spun far more palatably, i.e., "BNP is providing “continuity of service” to Deutsche Bank’s prime-brokerage and electronic-equity clients as the two companies discuss transferring over technology and staff", according to a July 7 statement. The ultimate goal of the talks is for BNP to take over the vast majority of client balances, which are slightly less than $200 billion currently.

There is just one problem: nothing is preventing those clients who would be forcibly moved from a German banking giant to a French banking giant from redeeming their funds. And that's just what they are doing. Or rather, nothing is preventing them from moving their exposure for now, which is why they are suddenly scrambling to do it before they are suddenly gated.

Which is why the final shape of the deal remains, pardon the pun, fluid, and it is unclear how it will proceed, facing a multitude of complexities, including departing clients.

In an attempt to stop the bank run, BNP executives are meeting with U.S. hedge-fund clients this week to convince them to stay following similar sit-downs with European funds last week, Bloomberg sources said.

However, if this gambit fails, and hedge funds keep moving their business elsewhere, officials at the German bank may just relegate its assets tied to the prime finance division into the newly formed Capital Release Unit, i.e. the infamous "bad bank" which is winding down unwanted assets totaling 288 billion euros ($324 billion) of leverage exposure, and the prime brokerage is responsible for much of the 170 billion euros of leverage exposure that’s coming from the equities division into the division, also known as CRU a presentation shows.

It also means that countless hegde funds are suddenly at risk of being gated on whatever liquid exposure they have toward Deutsche Bank.

To be sure, Deutsche Bank’s hedge fund balances have been declining throughout the year as speculation swirled around Sewing’s intentions for the prime brokerage, but the rate of redemptions was far lower than $1 billion per day. Now that the bank jog has become a bank run, the next question is how much liquidity reserves does DB really have and what happen if hedge funds clients - suddenly spooked they will be the last bagholders standing - pull the remaining €150 billion all at once.

We are confident we will get the answer in a few days if not hours, until then please enjoy this chart which compares DB's stock decline to that of another bank which was gripped by a historic liquidity run in its last days too…

The magician: Attract the 
public's attention, left hand 
(EPSTEIN) - While the trick 
comes from the right hand 
(Deutsche Bank and the 
financial system)



HalTurner,
16 July, 2019

Deutsche Bank clients, mostly hedge funds, have started a "bank run" which has culminated with about $1 billion per day being pulled from the bank.

Two weeks ago, RenTec, the quant fund, pulled its cash from Deutsche Bank as a result of soaring counter-party risk in the Derivatives Market, just days before the full - and to many, devastating - extent of the German lender's historic restructuring was publicly disclosed.

Questions about the viability of Deutsche Bank are swirling because everyone with half a brain knows that Deutsche Bank has billions of euros worth of derivatives and credit default swaps, which they list on the balance sheets as liquid assets. They're not liquid - at all.

This realization by the financial community big shots has caused Deutsche Bank's stock price to nose-dive over the past year, to the point there is simply no equity value there any more.   This has caused almost everyone else to decide to cut their counter-party risk with the bank that holds €45 trillion in derivatives it oversees.  That means clients, mostly hedge funds, have started a "bank run" which has culminated with about $1 billion per day being pulled from the bank.

The bank announced it was laying off almost 20,000 employees and closing certain business units to improve the Bank's financial situation but word got out that as a result of the modern version of this "bank run" (where it's not depositors but counter-parties that are pulling their liquid exposure from DB on fears another Lehman-style lock up could freeze their funds indefinitely) Deutsche Bank is considering how to transfer some €150 billion ($168 billion) of balances held in it prime-brokerage unit - along with technology and potentially hundreds of staff - to French banking giant BNP Paribas.

Deutsche Bank CEO Christian Sewing is pulling back from catering to risky hedge-fund clients, i.e. running a prime brokerage, as he attempts to radically overhaul the troubled German lender while BNP CEO Jean-Laurent Bonnafe wants to expand in the industry. 

A deal of this magnitude would be a stark example of the German firm’s retreat from global investment banking while potentially transforming its French rival from a small player in the so-called prime-brokerage industry to one of Europe’s biggest.

In an attempt to stop the bank run, BNP executives are meeting with U.S. hedge-fund clients this week to convince them to stay following similar sit-downs with European funds last week.

A forced attempt to change prime-broker counterparties is doomed to fail if clients have already decided they have no intention of sticking with Deutsche Bank. Clients would prefer to pick their own Primary Broker counterparty than be assigned one by a failing Deutsche Bank.

With the bank run accelerating, pressure on the bank to complete a deal soon is soaring.

HAL TURNER COMMENTARY

European Banking laws do not protect Depositors the way American Banking laws do.  In Europe, if a bank fails, DEPOSITORS CAN LOSE THEIR MONEY but get "equity" (stock) in the failed bank as compensation during a bank reorganization.   

Some larger Depositors get what is euphemistically called "a Haircut" meaning they do not even get full stock value for the money they lose.   This is known in the industry as a "Bail-In" since depositors are the ones who lose and the banks get Depositor money in the failing bank's pocket.

With this type of news coming out from Europe today, its a wonder Depositors are not already lined-up to get their money out of Deutsche Bank.

You can rest assured ... that ANYTHING in their 45 TRILLION euro book of Derivatives that could be sold off for a profit HAS been sold. 

You can also be virtually assured that what remains in Deutsche Bank's 45 Trillion EURO derivatives book are losers and hidden losses.

As I have said for years now Deutsche Bank was a DEAD BANK WALKING (their derivatives book told me that) ... and that eventually the German Government was going to have to come in and put in taxpayer money to keep the bank from collapsing (which would severely hurt the German Economy). 

ANY depositor in Deutsche Bank would NOW be a fool to leave any uninsured money in that institution ... since you would face the risk of LOSING ALL of the uninsured part of that money. 

Once a bank's unraveling begins it tends to accelerate to TERMINAL VELOCITY fairly quickly. 

Can the bank in it's present form last until the New Years?

Maybe ... but you wouldn't find my leaving my own money there as we wait to see.

Maybe this is why German Chancellor Angela Merkel has been seen literally shaking at public events like this one on June 18 in Berlin, her whole body visibly shaking as she received the new Ukrainian president at the chancellery:

Or as shown by NBC News HERE a week later on June 27 while she appointed a new Justice Minister.

Or as seen for the THIRD TIME on July 10 when the German chancellor's body shook back and forth visibly as she stood at a military honors ceremony alongside the visiting Finnish prime minister Antti Rinne:

There is widespread speculation -- only rumors - she may have the inside info about Deutsche Bank and knows that if (when) the bank fails, the German people would likely rise-up and LYNCH HER for it.


The German people would be the least of it. If Deutsche Bank fails, it takes out the €45 TRILLION Derivatives Market and that would smash the global financial system in a way the world has never seen before. It would trigger a global financial meltdown.