Deutsche Bank (NYSE: DB) is the 11th largest bank in the world, and the largest in Germany, which itself is the largest economy in Europe. The bank is facing a MAJOR liquidity event, which if realized in full, will shake the world financial system to its core and perhaps the viability of the Euro itself!
Deutsche Bank’s stock price has lost 50% of its value this year alone, and the bottom appears nowhere in sight. In January 2018, the stock was trading at just over $19/sh, and it now trades below $9/sh.
Why is Deutsche Bank appearing ready to go the way of Lehman Brothers and Bear Sterns?
To start, Deutsche Bank appears up to its eyeballs in secret corruption schemes that have plagued lives of many other large banks. On November 29, German authorities raided six Deutsche Bank offices around the Frankfurt area in an alleged money laundering scheme originating in their wealth management division. The raid involved more than 170 officials and focused on employees who allegedly helped wealthy clients establish offshore companies to help launder money.
Additionally, large cracks are again beginning to appear in Europe’s economy, and it’s the big banks who are holding all that excessive debt used to artificially prop up the economy ten years ago.
Europe Being Torn Apart
In an effort to hold the European Union together, large financial institutions in Germany and France made excessively bad loans to countries like Greece, Italy, Spain, and Portugal. Particularly in Greece and Italy, as those loans began to go bad, they lent more money so the payments could continue. This is like issuing a credit card so that someone has money to pay another credit card they already can’t afford!
Once again, Italy and Greece are on the brink of default, at the same time the Brits are exiting the European Union (the Brexit).
This puts the full weight and cost of preserving the European Union on Germany and France. And to nobody’s surprise, the French people are now rioting in the streets!
Decade Old Hangover
Of the major banks in the world, almost none have fully recovered from the near banking Armageddon which occurred a decade ago. Deutsche Bank is no exception.
Now with a book of questionable loans, a weakening European economy, money laundering scandals, and a weakening trust in the ability of Deutsche Bank to properly preserve the wealth of their customers, is it any wonder the bank is seeing significant stress??
If history is any guide, where there is smoke there is fire. There is probably a lot more NOT being told. If I had money in or around Deutsche Bank, I would be withdrawing it tomorrow!