You remember Lehman Bros, right? When it filed for bankruptcy, its share price plummeted more than 90% in a single day. The stock market dropped 504 points that day – still one of the largest single day drops in history.
Lehman Bros was the first domino to fall during the financial crisis of 2008.
But now there’s another bank that’s on the brink of bankruptcy. And this bank is MUCH bigger than Lehman Bros was when it collapsed.
The bank I’m referring to is Deutsche Bank. Here’s the latest on their financial troubles…
Here’s a re-cap of what’s happened at Deutsche Bank over the past 15 months:
- In April of 2014, Deutsche Bank was forced to raise an additional 1.5 Billion of Tier 1 capital to support it’s capital structure. Why?
- 1 month later in May of 2014, the scramble for liquidity continued as DB announced the selling of 8 billion euros worth of stock – at up to a 30% discount. Why again? It was a move which raised eyebrows across the financial media. The calm outward image of Deutsche Bank did not seem to reflect their rushed efforts to raise liquidity. Something was decidedly rotten behind the curtain.
- Fast forwarding to March of this year: Deutsche Bank fails the banking industry’s “stress tests” and is given a stern warning to shore up its capital structure.
- In April, Deutsche Bank confirms it’s agreement to a joint settlement with the US and UK regarding the manipulation of LIBOR. The bank is saddled with a massive $2.1 billion payment to the DOJ. (Still, a small fraction of their winnings from the crime.)
- In May, one of Deutsche Bank’s CEOs, Anshu Jain is given an enormous amount of new authority by the board of directors. We guess that this is a “crisis move”. In times of crisis the power of the executive is often increased.
- June 5: Greece misses its payment to the IMF. The risk of default across all of it’s debt is now considered acute. This has massive implications for Deutsche Bank.
- June 6/7: (A Saturday/Sunday, and immediately following Greece’s missed payment to the IMF) Deutsche Bank’s two CEO’s announce their surprise departure from the company. (Just one month after Jain is given his new expanded powers). Anshu Jain will step down first at the end of June. Jürgen Fitschen will step down next May.
- June 9: S&P lowers the rating of Deutsche Bank to BBB Just three notches above “junk”. (Incidentally, BBB is even lower than Lehman’s downgrade – which preceded its collapse by just 3 months)
And that’s where we are now. How bad is it? We don’t know because we won’t be permitted to know. But these are not the moves of a healthy company.
Compare: Deutsche Bank has $1.709 trillion in assets vs. Lehman Bros $639 billion at the time they filed bankruptcy. That means Deutsche Bank is nearly three times bigger than Lehman Bros was in terms of assets.
Furthermore, Lehman Bros employed “only” 26,200 people when the company collapsed in 2008. Deutsche Bank, on the other hand, employs 98,138 people worldwide. Based on number of employees, Deutsche Bank is nearly four times as big as Lehman Bros was.
By any measure, Deutsche Bank is magnitudes bigger than Lehman Bros. If it collapses (and it appears it will), then the financial fallout will be magnitudes bigger as well.
What do you think… will the collapse of Deutsche Bank trigger the next financial crisis? And will it happen this fall?