Monday we wrote about the sharp sell-off in Germany’s largest bank, Deutsche Bank. We posed the question, is one of the world’s largest banks in a death spiral? While the verdict may still be out, things aren’t looking good for Deutsche Bank. Yesterday, Bloomberg reported that a number of funds that clear derivatives trades with the bank withdrew their excess cash and positions.
This is how a death spiral starts for a big bank. A few counterparties start walking away and then a few more do the same and then the loss of business pressures results, and then a few more banks walk away and if the trend continues the risk of failure increases exponentially.
Deutsche Bank isn’t a bank you want to ignore. Bloomberg has more of the details.
The stock has fallen 54 percent this year, more than twice the decline in a Bloomberg banking index. The stock dropped earlier and its riskiest bonds declined after some hedge funds moved to reduce their financial exposure.
The funds, a small subset of the more than 800 clients in the bank’s hedge fund business, have shifted part of their listed derivatives holdings to other firms this week, according to an internal bank document seen by Bloomberg News. Among them are Izzy Englander’s $34 billion Millennium Partners, Chris Rokos’s $4 billion Rokos Capital Management, and the $14 billion Capula Investment Management, said a person with knowledge of the situation who declined to be identified talking about confidential client matters.
“The issue here is now one of confidence,” said Chris Wheeler, a financial analyst with Atlantic Equities LLP in London. “That’s what’s going on here. The thinking is ‘Deutsche Bank is fine, but there’s a slim chance it might not be, so why leave my money in there?’”
Deutsche Bank Concerns Deepen
Jeremy Jones, CFA
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