Monday, October 3, 2016

Deutsche Bank will be bailed out if needed

We are not privy to the goings-on in Germany at Deutsche bank and we are certain that there are myriad problems all of a sudden seemingly coming to a head that are causing the bank to be talked about in “Lehman”-like terms. The question is whether Merkel & Company shall come to the Bank’s aid and save it from failure, and although Ms. Merkel has said countless numbers of times that she has no intention of doing so, in the end she will. She shall have no choice. Germany… and by extension the whole of Europe, and buy even further extension… the industrialized world cannot abide the collapse of the Deutsche Bank. It will be bailed out. Other banks in Germany can and would be allowed to fail, but the Deutsche Bank cannot and will not be.

In the world of capital markets, perception is all-too-often reality; if the market “perceives” you as impaired, you are impaired and if the market “perceives” you as insolvent, you are effectively insolvent… at least for the moment. This is the harsh reality of the market and as our old friend from 25 years, Mr. Barry Bausano, the Chairman of the Deutsche Bank’s hedge fund business said yesterday, even though the bank’s prime brokerage operation is very nicely profitable the bank still has “a perception issue.” Barry and others at the helm of the Bank’s various capital markets divisions have said that there have been no noticeable outflows of funds from the Bank, and given that that is so the Bank will likely weather the storm. Certainly we expect that that is true and at the moment we’ve no doubt but that that is indeed and in fact true. However, once again, in the capital markets, perception is all too often reality.

Risk does indeed happen fast, as our old friend, Doug Kass, reminds everyone.