For those who may be tired of hearing about the woes of Deutsche Bank, I unfortunately cannot apologize at this time. It is necessary for me to continue cataloguing the adventures of the systemically important German bank because it is one of the key signposts that trouble is brewing. More accurately, trouble is being poured out with another batch brewing right behind it.
Despite reassurances from Deutsche Bank’s latest CEO, all is not well. The stock has lost almost 50% of its value in 2016 after a dismal performance in 2015 as well. So why is this happening now?
The immediate catalyst for the renewed selling was the announcement over the weekend from Angela Merkel proclaiming that DB would not receive a bailout – at least until after the national elections in Germany in September 2017. Bailing out Deutsche Bank may be politically unpopular, but playing this game of chicken and removing the implied backstop of the government over the next year ratchets up the risk of holding any Deutsche Bank equity or debt by several levels. Merkel has been tanking politically due to her handling of the so-called migrant crisis, and her party has suffered some noteworthy defeats in regional elections. Surely now would not be the time to put additional capitalization pressure on a bank with a derivative book several times larger than the GDP of the entire European continent, right?