Picture Credit: Deutsche Bank’s Frankfurt HQ
In a hat tip to Nassim Nicholas Taleb for “Antifragility“, I am going to call this “Anti-Innovation.” In a sad echo of Wells Fargo’s tribulations, Deutsche Bank lashed out at analysts yesterday in reporting horrific results, admitting to a DOJ $14B fine (NOT $6B!), but failed to admit that they have been seeking a massive EU 150B bailout from the European Monetary Authority (EMA) since this summer ! Even the Deutsche Bank analyst thinks Deutsche Bank is the source of the market’s “volatility” !! DB says they “mis-priced” their derivatives exposure (AGAIN?). DB demand deposits plunged 13% as a MONTH ago! And this is the period when Deutsche Boerse sanctioned DB for failing to deliver PHYSICAL gold to fulfill their contracts. The Bank of England JUST asked domestic and Italian institutions about their DB exposure (you’re kidding, right, now?) And DB blames Central Banks for its problems?? So what happens if the derivatives and Justice Department fine are just the tip of the iceberg? And what is Merkel does not step in with a bailout (money all spent on her “agendas”? No, this is NOT The Onion…. read the eFinancial Careers- where finance professionals go to look for employers where they would like to take their talents – article below which made me spit up my “Morning Coffee !”
But during yesterday’s analyst call CEO John Cryan didn’t made it clear where the bank stands. He said that the “infuriating” flood of negativity stemming from the U.S. Department of Justice seeking a $14bn fine for allegedly mis-selling mortgage-backed securities “has created uncertainty, uncertainty that affects the market’s view of Deutsche Bank as an investment, uncertainty that affected some clients’ views of Deutsche Bank as a counterparty, and uncertainty that even affects our financial planning and strategy execution.”
The more challenging outlook has forced the bank to adjust its financial planning and has negatively impacted its liquidity reserves and prime brokerage business as many hedge funds in particular have switched allegiances. Cryan acknowledged, “We do see a diminution in revenues across many of our businesses…. we know that when our name is in the headlines for the wrong reasons, the phone doesn’t ring as frequently.”
Earlier this month in a letter to Deutsche Bank employees, Cryan had warned that conditions “will stay difficult for a while,” said he was working to finalize the settlement ASAP. He plans to intensify the major restructuring already underway. While that honesty satisfied many, a major shareholder told Cryan to make more cuts from its bond trading desks: “Fixed income is still oversized in terms of cost and on group level there are still 10,000 staff too many.” A Fairesearch Alphavalue analyst said that Deutsche Bank should shutter its investment banking division altogether. That is unlikely, and Cryan did assure analysts that issues such as liquidity had recently stabilized and its capital position had improved.
Separately, Nomura reported turning a profit for a second-straight quarter. This time last year, the Japanese bank posted a loss of $438m in 3Q 2015, which led to a significant restructuring that included 900 job cuts across Europe and the Americas. Reduced costs from those redundancies taken together with increased revenue from fixed-income trading led the bank back to profitability. But will Nomura be hiring front-office investment bankers anytime soon? That’s still to be determined, but if so, it likely won’t be until next year, and it will probably be at a cautious pace.
Picture Credit: DB’s Cryan – Time to pray…