Deutsche Bank Ramps Up Leveraged Loan Business In “Hail Mary Pass” For Revenues (More Risky Lending)

Deutsche Bank is still suffering from the global financial crisis where their stock price peaked at $125 and is now only $16.93, despite the staggering intervention from the European Central Bank (ECB).

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Deutche’s revenues have been faltering due to a decline in trading revenue. DB’s trading revenue was down 30% year-on-year to €1.512 billion versus €2.162 billion in Q2 2017.  Trading revenues in Q2 2017 fell 18% year-on-year to 1.666 billion euros versus 2.027 billion euros.

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Hence, Deutsche Bank is now throwing a “Hail Mary pass” and  hoping that leverage loan growth saves the day.  A leveraged loan is a commercial loan that is extended to companies or individuals that already have considerable amounts of debt. Lenders consider leveraged loans to carry a higher risk of default, and as a result, a leveraged loan is more costly to the borrower.

That’s the ticket. Bet on risky corporate loans as your HMP (Hail Mary Pass). Well, leverage loans had their best year in 2017.

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But DB’s rank in terms of leveraged loans is shrinking.

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DBs earning per share is the stuff of … the German Battleship Bismarck.

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Yes, global central bank policies have definitely encourage more risk taking.

Deutsche Bank? F*** that $hit. JP Morgan Chase!!!

Here is Boston College’s Doug Flutie making his memorable “Hail Mary” pass against Miami. The blueprint for DB’s leverage loan pass for increased earnings.

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T2: Italy’s New Record Target2 Imbalance (Capital Flight)

TARGET2 (or T2) is the real-time gross settlement (RTGS) system with payment transactions being settled one by one on a continuous basis in central bank money with immediate resolution.

Sounds simple? The problems is that massive imbalance have appeared between the suppliers of credit (like Germany) and the demanders of credit (like Greece and Italy). It is the direct result of an unsustainable balance of payment system. The imbalances represent both capital flight and debts that can never be paid back (like Italy).

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Italian banks are not popular with many Italians, particularly the populist Five-star Movement.

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Particularly with Italy having the lowest TARGET balance with the ECB (although Spain is no slouch either).

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Any wonder why the ECB is dead set on low rates and an expanding balance sheet in an effort to keep rates low?

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Here is a photo of the REAL T2 (Terminator): Mario Draghi.

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Europe’s Fragile and Bad-debt Ridden Banking System (Happy Columbus Day!

In honor of Italian explorer Christopher Columbus, here is review of Italian banks (as well as a benchmark, Deutsche Bank).

Here are two notable Italian banks: Uni Credit (a global systemically important bank – Bucket 1) and Banca Monte dei Paschi di Siena (a domestic systemically important bank).  And for comparison, my former employer Deutsche Bank. What do the three of them have in common? Yes, they all peaked in 2007 and all have plummeted since.

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By comparison, US banks have fared better since 2007 (although Bank of America looks the most “Italian”).

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What is the difference between US banks and European banks (notably Italian banks)?  European banks have close to 1 trillion euros worth of bad loans on their books. The ECB is attempting to get European banks to take reserves on bad loans. The only problem is that the new regulation applies only to loans that go bad after the start of 2018, leaving a decade of accumulated bad debts untouched.

According to Chris Whalen at Institutional Risk Analyst, Under current international accounting rules, EU banks can essentially ignore (and accrue interest) on bad loans. This makes published financials for EU banks completely useless for investors and credit rating agencies. More, just as “quantitative easing” in the US has not particularly helped either the resolution of bad loans or new lending, in the EU the opportunity created by ECB chief Mario Draghi’s efforts has been largely wasted. More public sector debt has been incurred and the banks – which admit to some €850 billion (6%) in non-performing loans – are essentially insolvent as a group.”

Even with the ECB purchasing more assets than The Fed for their balance sheet, European banks remain drowning in bad debt.

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Yes, even Christopher Columbus has acid indigestion at the thought of the bad-debt ridden Italian banks.

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Central Banks And Housing Prices: A Tale Of Three Countries (US, Germany and Japan)

23 t4The US Federal Reserve, the European Central Bank (ECB) and Bank of Japan (BOJ) have all been hyper-active in recent decades. But the low-rate policies have not produced the same outcomes.

The US, after home prices declined in 2008 and 2009, took a while to recover. Only in 2012 did US home prices begin to rise again.

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Germany’s house prices also fell, but started rising again in 2010.

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Japan is a different story. Despite staggering increases in asset purchases by the BOJ (and negative lending rates), Japan has experienced a decline in housing prices.

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So, The Fed’s Yellen, ECB’s Draghi and BOJ’s Kuroda have had different easing experiences.

My Kuroda! 

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ECB And Draghi Keep Rates At Zero, Downgrades 2018 Inflation To 1.2% (To Infinity … And Beyond!)

The European Central Bank (ECB) President Mario Draghi is mimicking Buzz Lightyear from Pixar’s Toy Story: “To Infinity and Beyond!” That is, Draghi announced today that the ECB is keeping their key rates at 0%, 0.25% and -0.40%.

At today’s meeting the Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.40% respectively. The Governing Council expects the key ECB interest rates to remain at their present levels for an extended period of time, and well past the horizon of the net asset purchases.

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And like the US, the measured inflation rate in the Gyrozone is forecast to be 1.2% in 2018 and 1.5% in 2019.

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Of course, “Super Mario” thinks everything is beautiful in the European Zone. Although of the big three (Germany, UK and France), only Germany has YoY GDP growth of over 2%.

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The good news? The number of EMEA (Europe, Middle East, Africa) countries with negative 2 year sovereign yields stayed at 19.

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But the Central Banks are engaged in a monetary form of “Dueling Banjos”

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Or as Mario Draghi says, “To infinity … and beyond!” for ECB monetary policy.

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