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Deutsche Bank, 60 times Over-Leveraged and a $72 trillion Derivative Exposure

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paddle_storeWhoa, how close is Deutsche Bank to causing ABSOLUTE HAVOC in the eurozone? At a capital ratio of just under 1.68%, DB is leveraged up to 60x and with a derivative exposure of over $72.8 Trillion, I think the technical term is “they’re f**ked”.

 

Finally, if anyone is still confused where the pain is headed next, here is a list from Morgan Stanley of all Euro banks with a Core Tier 1 ratio that is so low, that the banks will soon regret not raising more capital in the period of calm that the ECB’s LTRO bought them.

Also, one bank is missing from the list above: Deutsche Bank. CT1/TA: 1.68%. Oops.

That’s right – Deutsche Bank was so bad that it wasn’t even allowed to appear on a screen of Europe’s most undercapitalized banks – and we helpfully pointed out its true capital ratio of just under 2%, and an implied leverage of 60x!

According to FDIC Vice Chairman Tom Hoenig, Deutsche Bank is horribly undercaptialized.

A top U.S. banking regulator called Deutsche Bank’s capital levels “horrible” and said it is the worst on a list of global banks based on one measurement of leverage ratios. “It’s horrible, I mean they’re horribly undercapitalized,” said Federal Deposit Insurance Corp Vice Chairman Thomas Hoenig in an interview. “They have no margin of error.”  Deutsche’s leverage ratio stood at 1.63 percent, according to Hoenig’s numbers, which are based on European IFRS accounting rules as of the end of 2012.

In other words, the slighest systemic shock in Europe and Deustche Bank gets it. And as Deutsche Bank goes, so does Germany, so does Europe, so does the world.

Immediately confirming Hoenig’s (and Zero Hedge’s) observations, was Deutsche’s prompt repeat that “all is well” and that “these numbers” are not like “those numbers.”

“To say that we are undercapitalized is inaccurate because if you look at the Basel framework, we’re now one of the best capitalized banks in the world after our capital raise,” Deutsche Bank’s Chief Financial Officer Stefan Krause told Reuters in an interview, when asked about Hoenig’s comments. “To suggest that leverage puts us in a position to be a risk to the system is incorrect,” Krause said, calling the gauge a “misleading measure” when used on its own.

Of course, DB’s lies are perfectly expected – after all it is a question of faith. So let’s go back to Hoenig who continues to be one of the few voices of reason among the “very serious people”:

Still, equity analysts said that while Deutsche Bank likely will meet regulatory capital requirements, its ratios look weak.

Hoenig pointed to the gain in Deutsche Bank shares in January on the same day it posted a big quarterly loss, because it had improved its Basel III capital ratios by cutting risk-weighted assets.”My other example with poor Deutsche Bank is that they lose $2 billion and raise their capital ratio. It’s – I don’t want to say insane, but it’s ridiculous,” Hoenig said.

A leverage ratio is a better method to show a firm’s ability to absorb sudden losses, Hoenig says, and he has floated a plan to raise the ratio to 10 percent. He said the 3 percent leverage hurdle under Basel was a “pretend number.”

Opponents of using such a ratio say that it ignores the risk in a bank’s loan books, and can make a bank with only healthy borrowers look equally risky as a bank whose clients are less likely to pay back their loans. It also fails to take into account how easily a bank can sell its assets – so-called liquidity – or whether it is hedged against risk.

Still, equity analysts said that while Deutsche Bank likely will meet regulatory capital requirements, its ratios look weak.

But is there anything to really worry about? Well, as ZeroHedge put it….;-)

But just as we were about a year ahead with our warning of DB’s “off the charts” leverage, so we wish to remind readers that some time around June 2014, the topic of Deutsche Bank’s

$72.8 trillion in derivatives, or about 21 times more than the GDP of Germany

, will be the recurring news headline du jour.

Recall from April: “At $72.8 Trillion, Presenting The Bank With The Biggest Derivative Exposure In The World (Hint: Not JPMorgan)” which for those who missed it, we urge rereading:

Source: ZeroHedge

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Wynter Benton Returns, Predicts Silver Will Trade Above $50 by Dec 31, 2012

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Wynter Benton is an ex JPMorgan Commodities broker who was well know for his accurate predictions via Yahoo’s forum in the silver market. After been missing for the last 11 months, has returned to predict silver to go to $50 per oz by the end of the year. A fascinating story of what happened to MF Global.

Silverdocters writes:

Benton claims that the Oct 31st 2011 take-down of MF Global was SPECIFICALLY designed to prevent the group of former JPM traders with a chip on their shoulders against their old boss Blythe Masters from taking delivery of a massive amount of physical silver and breaking JP Morgan’s massive naked short silver position.

Benton also claims that JP Morgan’s $36 silver derivative time-bomb is still in effect, and states that the ex-JPM traders have re-grouped, and that silver WILL trade above $50 before Dec 31, 2012.

Benton wrote on Yahoo’s forum of his latest prediction.

We wish to inform our followers that silver will trade above $50 before Dec 31, 2012.

The $36 silver derivative timebomb is still in effect for the Morgue so count the trading days once silver gets above $36.

MFG was setup to prevent us from taking silver above $45 last year. Did anyone wondered why MFG failed precisely 30 days before our deadline or why no one can locate the vaporized money? It was designed SPECIFICALLY to stop us from taking silver up and out. Think about it.

Too bad The Morgue cant do that again this time cause we are beyond their reach now.

Once again, we are back. . . . . do da do da. . . .

http://finance.yahoo.com/mbview/threadview/?&bn=657e31ff-3231-3847-9760-4f6647a2dfc9&tid=1347560331309-c1ef57d8-049d-48bb-9918-c56a7832d4d9&mid=

Source: silverdoctors

 

Derivatives – what happens when the SHTF

Comments Off on Derivatives – what happens when the SHTF

Of $250 trillion of outstanding derivatives a mere 5 banks (and really 4) account for 95.9% of all derivative exposure.

 The top 4 banks:JPM with $78.1 trillion in exposure,

Citi with $56 trillion,

Bank of America with $53 trillion.

Goldman with $48 trillion, account for 94.4% of total exposure.

What happens when the SHTF ? according to WashingtonBlog.com

The total value of derivatives in the world exceeds total global gross domestic product by a factor of 10, said Mobius, who oversees more than $50 billion. With that volume of bets in different directions, volatility and equity market crises will occur, he said.The global financial crisis three years ago was caused in part by the proliferation of derivative products tied to U.S. home loans that ceased performing, triggering hundreds of billions of dollars in writedowns and leading to the collapse of Lehman Brothers Holdings Inc. in September 2008.

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