We use cookies to help improve and maintain our site. More information.
close

September 30, 2016

0

Thank God it's Friday

Deutsche Bank is back at the top of the headlines today, after it became known that a number of hedge funds had withdrawn excess liquidity from its prime brokerage unit, which admitted "perception issues". Thank God it's Friday, and Monday is a bank holiday in Germany, because that will give Deutsche Bank a couple of days or three to work on those perceptions. That the holiday is celebrating German unification adds a further ironic twist to the narrative.

In what could be a very expensive disclosure of confidental client matters, "a person familiar with the situation who declined to be identified talking about confidential client matters" told Bloomberg that about ten hedge funds using Deutsche Bank as an intermediary had moved some of their holdings of listed derivatives to other firms. The Financial Times explains that these hedge funds have imposed position limits on their exposure to Deutsche Bank because of the recent negative news on the bank and its elevated credit risk as measured by credit default swaps. Although the German stock market was closed, trading on Deutsche Bank continued in American and Asian exchanges through depository receipts, which are securities backed by holdings of foreign shares. ADR closed under 7% down for the day in New York. US bank stocks were dragged down between 1% and 4% as a result. 

How serious is the liquidity situation? We can't know the size of the withdrawals that have been made, but with this all over the financial news one could expect more hedge funds to follow suit. Deutsche Bank reported in its latest quarterly financial statements that its funding from "other customers" including prime brokerake added up to €71bn (net). The bank also reported a liquidity reserve of €223bn, including cash, highly liquid securities, and other central-bank eligible collateral. Its total external funding was €992bn, but it also reported a regulatory liquidity coverage ratio of 124%. This means Deutsche Bank has 24% more high quality liquid assets than it needs to meet its liquidity needs for 30 days, in a stressed scenario of lack of access to market liquidity.

Is this a new Lehman moment? There are a number of important differences between now and 2008. Derivative positions are generally backed by cash collateral these days. There is the requirement to hold high quality liquid assets with an ample liquidity coverage ratio, and central banks are ready to provide unlimited liquidity (against good collateral) as a matter of course and not as an emergency measure. But, like we said at the beginning, it would be a good thing if the long weekend of German unity were used to put to rest the perception issues surrounding Deutsche Bank since the $14bn figure for the DoJ fine was leaked.

Our other stories

We also have stories on Commerzbank laying off 10,000 staff; on Pedro Sanchez' future, or lack thereof; on a CDU revolt over Greece; on French budget promises; on what happened to Arnaud Montebourg's campaign; and on why a hard Brexit is far from inevitable.

Eurointelligence Professional Edition

For premium access, please log in or register 
for a free 3 day trial access to the Eurointelligence Professional edition. The best independent intelligence on the eurozone in a fast and easy to read format.

We have a publicly available short version of Eurointelligence Professional Briefing, which focuses on the geopolitical aspects of our news coverage. It appears daily at 2pm CET.  It only covers a portion of the full briefing, which appears at 9am CET, and is only which is available only to subscribers.

A message from Wolfgang Münchau

Welcome to the eurointelligence.com homepage.

Since 2006 we have been providing our readers from central banks, European and international institutions and the financial sector with our daily morning newsbriefing, each morning, at 9am CET, Mondays to Fridays. We are independent from governments and institutions, so you get our honest, sharp and frequently humorous take on the news and the debate. The subjects we are currently focusing on are all the issues relevant to the eurozone - the discussion about Greece, the lacklustre economic recovery in the eurozone, but also external influences, like the discussion on Britain's future in the EU and the EU relations with Russia. 
Many people were surprised by the re-emergence of the eurozone crisis. Eurointelligence readers would not have been. We have given our readers an honest assessment of what and what has not been resolved, at a level of a detail that has no match in the published media. Eurointelligence is the place to go to keep ahead of events in the eurozone.
I would like to invite you to register for a free 3-day trial, without commitment, so you can judge for yourself.

Wolfgang Münchau
Director Eurointelligence