“[The] share price is low but that is not what is worrying us and that is not what we are looking at. What is really important to us is our credit story which is very strong, it is fundamentally strong.” – Jorg Eigendorf, head of communications at DB on CNBC (sourced from Zerohedge)
“The credit story is strong?” To begin with, I’m not sure what the head of communications is doing on bubblevision talking about “credit.” If he understood the meaning of the words he was regurgitating from script, he would not have made that statement if he were under oath.
From a German politician (as reported in Zerohedge): “you can’t compare Deutsche Bank with Lehman. The bank is in a position to get out of this situation on its own.” As the adage goes: A rumor is confirmed as fact once that rumor is denied three times by politicians…
DB stock is down over 7% today. It’s likely the primary reason that the SPX is down 13 points as I write this (that plus the dismal new home sales report). DB stock has hit another all-time low. DB has lost 51% of its market value this year. The BKX bank stock index is down only 4% this year. The relative performance isn’t just a red flag, it’s a “code red” five-alarm danger signal.
Here’s the biggest indicator that DB not only has credit problems, but its assets are significantly overvalued by its auditors and internal financial people: DB’s stock market capitalization is 30% of it’s book value – i.e. DB trades at less than 1/3 its book value. The amount of cash on DB’s balance sheet is nearly 7x greater than its market cap.
There’s no telling just how catastrophically insolvent DB is because we can’t look at its off-balance-sheet “assets,” which are primarily very risky OTC derivatives. I also do not believe that DB is the infamous “black swan” because we all see it coming – especially the Central Banks.
But at some point some counter-party to DB is going to ask the bank to post more collateral against some type derivatives contract. That’s when the fun will begin. My bet is that right now the Bundesbank – with help from the Fed – is helping DB reinforce its collateral positions. But if DB’s stock keeps dropping, the collateral calls will likely intensify and come from places that are hidden from even Central Bank view.
As I was writing this, DB stock has been continuously hitting new lows. Note the huge increase in monthly volume in the graph above (yellow box). That’s institutional investors jumping off the sinking Titatanic into life rafts. There has not been any insider share activity in the last 12 months because insiders don’t own any shares, other than a meaningless amount of unvested compensation shares.
Something ominous in the financial markets is unfolding behind the “curtain,” off-balance-sheet and out of the view of anyone who might care to know the truth. DB’s balance sheet is a weapon of mass financial destruction in and of itself. But the hidden financial bombs a DB blow-up will trigger is what the market should really be worried about…