Macro Swan Watch: Deutsche Bank, Again

Deutsche Bank (DB) stock is approaching single digits again.   Watch this space. 

In 2016,  DB traded with a single digit handle for a few seconds before, we suspect, the monetary authorities stepped in.

When a “too big to fail” (TBTF) bank stock falls to into single digits, s the risk of panic increases, and the bank could face funding problems, and systemic risk skyrockets,

Unlike Lehman,  however, DB has a deep deposit base and is less dependent on wholesale market financing.

We are not certain why the stock is plummeting, but we do suspect markets are getting a bit concerned about Deutsche’s humungo derivatives book, and the global size of the derivatives markets, in general.

A legacy of the financial crisis which was ignored and never really dealt with.

The banks say these huge numbers — $157tn is more than twice global GDP — do not tell the whole story. And they are right: headline figures say nothing about the counterparties, the collateral, the offsetting positions, or whether the trades are centrally cleared. (Bear’s actual credit exposure — or its “net replacement cost of derivatives contracts in a gain position”, in the jargon — was much smaller, at $12.5bn.)  – FT, March 16

Though, we believe it is a small probability,  if the markets do run on DB’s derivatives book, even God won’t be able to save it.

Low probability, high impact macro swan.  Keep it on your radar.