Is another Lehman Bros. moment suddenly upon us? You may uncomfortably recall that it was the collapse of the giant Lehman Bros. investment bank that precipitated the Great Recession crisis of 2008. Another giant bank, Deutsche Bank, the biggest in Europe, and friend of Don Veto Trumpilini is on the verge of melting down. Plagued by money laundering accusations, The bank is attempting to reorganize; it laid off 18,000 employees on July 7th. More ominously, the bank has a derivatives exposure of $49 trillion. It cannot survive if clients begin removing funds. Reports are that a billion dollars a day are being removed, destroying the bank's remaining positive capitalization.
The GAO recently released its audit of secret loans made to DB during the Great Recession. You may also remember that the great liberal, Barrack Obama, bailed out Wall Street with trillions of taxpayer dollars instead of divesting the banks "too large to fail". DB took out $354 billion in revolving loans from the Federal Reserve. In contrast the bank's home country, Germany has only shelled out $79 billion since the crisis attempting to rescue its troubled financial institutions. Why did the US government rescue a foreign bank? Because Wall Street. DB is counterparty to major US financial institutions like Goldman Sachs; if DB were to go under, it could drag down domestic victims too. Deutsche Bank’s derivative tentacles extend into most of the major Wall Street banks. According to a 2016 report
from the International Monetary Fund (IMF), Deutsche Bank is also heavily
interconnected financially to JPMorgan Chase, Citigroup, Morgan Stanley and Bank of America and other mega banks in
Europe. The bank's share price has plummeted from $19 at the beginning of 2018 to just $8 at the end of that year. Shareholders lost $23 billion in market capitalization.
So counterparties are looking to ditch the sinking ship. A major reason is the bank's feeble attempt to reduce its mind-numbing high-risk derivatives exposure--it has managed only a 10% reduction since the crisis. DB is now attempting to retreat from its previous aggressive desire to be a major player in international finance, but it is finding it extremely difficult to avoid the kind of liquidity squeeze that brought down Lehman. DB wants to transfer $168 billion in prime brokerage accounts to the French mega bank PNB Paribas. It is assiduously avoiding calling the transfer a liquidity infusion, but in effect that is what it is. Spooking the market is the last thing Deutsche Bank wants. But there is one major 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 in the 21st century version of a bank run.