All signs show now that a new, big financial storm is about to erupt on the Frankenstein's creation called eurozone. It seems that the German monsterbank is about to collapse, breaking this "marvelous" euro architecture into pieces.
As mentioned in investmentresearchdynamics.com :
With rumors flying because of DB [Deutsche Bank] ’s stock performance this year, management issued a statement defending the bank’s liquidity position [...] Suffice it to say that historically, when a bank has been forced to issue a statement defending its solvency, insolvency is not far behind. We saw this with Bear Stearns and Lehman. Denial of a catastrophic problem is affirmation that the problem is very real.
Typically the credit markets sniff out a very real problem before the equity market “catches up.” Deutsche Bank has emerged as one of the most recklessly managed “Too Big To Fail” banks. Under Anshu Jain’s “leadership,” DB became a financial nuclear weapon bloated on derivatives, exceedingly risky assets and highly corrupt upper management. It’s a literal cesspool of financial fraud and Ponzi scheme banking activity.
Currently DB has roughly $2 trillion assets supported by $68 billion of book value. The problem is that many of its assets are highly overstated in value and have yet to be written down. The financial world shuddered at the $7 billion of admitted write-offs DB took in 2015. The problem is that over 85% of the charges taken by DB were attributed to legal costs. We know its “on-balance-sheet” assets are being reported at a significantly overvalued stated level. DB has big loans to the energy sector, Glencore, Volkswagon/Audi and other sundry highly risky businesses. It would only take a 3.5% write-down of its asset base to wipe out its book value.
THEN there’s the derivatives. DB has $58 trillion of notional amount in OTC derivatives hidden off its balance sheet. The bank will claims most of that is hedged out and the “netted” amount is a sliver of the notional amount. But ask AIG and Goldman Sachs how hedging / netting works out in the long run. “Netting” is only relevant when counterparties are prevented by Central Banks from defaulting. Once the defaults start, “net” becomes “notional” in a hurry.
The current era’s first big bank casualty will likely be Deutsche Bank, unless the German Government and the EU and U.S. Central Banks determine that a DB collapse would collapse the west, which it likely would. To put this in perspective, DB’s stated assets are $2 trillion. Germany’s GDP is just under $4 trillion. Then there’s the derivatives…
According to other estimations, the expose of the bank to derivatives, is even higher. As mentioned in previous article : “Only Deutsche Bank, the largest bank in Germany, is significantly exposed, holding dubious financial products known as 'derivatives', worth 67 trillion euros. This amount is similar to the GDP of the entire world and 20 times greater than the GDP of Germany. Any comparison with the situation of the bank Lehman Brothers in 2008 would not be irrelevant. Just when Lehman Brothers went bankrupt, had available derivatives of only 31.5 trillion. The crisis of 2008 confirmed the concise definition of derivatives as proposed by the American tycoon Warren Buffet: 'financial weapons of mass destruction.'”
It is quite clear that the euro-system could collapse any moment and not because of the usual scapegoat called Greece. Considering that the expose of the German monsterbank to derivatives is higher compared to that of Lehman, we can only imagine what the bubble burst would bring. In reality, however, no one has an idea of what the day after would look like, due to the unprecedented euro-currency experiment.
In reality, Berlin does not want to destroy eurozone because the euro-currency is the tool to impose the Greek model to all the debt colonies. But that doesn't mean it can prevent a disaster which might lead to an ugly ending of this currency. It is almost certain that the Germans and others have ready plans to return to the national currency.
In case that the German monster fall to the ground, everyone will run for their lives. Greece will be left in the worst position, as it is now totally dependent on Draghi's liquidity injections, after five years of a systematic economic destruction by the EFD-IMF axis.
Unfortunately, Tsipras administration has been proved unreliable to design a viable Grexit option. But now, Greece has the last chance to design such an option, in order to limit the terrifying, unpredictable consequences of the ugly collapse. There is a little time left for Grexit, which could be proved the lifeboat that would help Greece survive from the sinking of the Titanic.