Deutsche Bank shares have fallen sharply on the news that German
Chancellor Angela Merkel won’t bail-out the struggling bank, with shares
falling by as much as six percent in early Monday trading, making it
the worst performance since 1992. Since January, the bank’s shares have
lost over 52 percent of their value.
Merkel also
refused to provide financial assistance to Deutsche Bank in its legal
battle with the U.S. Department of Justice. The chancellor made her
position clear during talks with Deutsche CEO John Cryan, according to
Focus magazine. The German-based lender may be fined up to $14 billion
over its mortgage-backed securities business before the 2008 global
crisis.
The German Chancellor also noted that Deutsche
Bank will not be getting a bailout from the European Central Bank – the
lender of last resort for European banks.
So could Germany be considering a bail-in instead of a bailout?
According to Investopedia:
A bail-in is rescuing a financial institution on the brink of failure
by making its creditors and depositors take a loss on their holdings. A
bail-in is the opposite of a bail-out, which involves the rescue of a
financial institution by external parties, typically governments using
taxpayers money. Typically, bail-outs have been far more common than
bail-ins, but in recent years after massive bail-outs some governements
now require the investors and depositors in the bank to take a loss
before taxpayers.
So the question becomes; are millions of Germans about to see their savings stolen by the government to prop up Deutsche Bank?
It’s
not at all beyond the realm of possibility, as it has happened before
in very recent history. To keep the bank solvent, the Bank of Cyprus
took almost 40% of depositor’s funds – leaving customers with
essentially nothing they could do about having their money stolen.
Assets were frozen and ATM machines were not refilled.
Perhaps
this explains why in mid-August Germans were told by their government
to stockpile 10 days worth of water, and 5 days worth of food in case of
a “national emergency” hitting the country.
Deutsche
Bank’s unbelievably risky portfolio and it’s exposure to the derivative
markets, which stands at over $40 trillion dollars, would undoubtedly
cause exponentially more damage than the Lehman Brothers collapse did
back in 2008, which precipitated the Great Recession of 2008.
Read more: 8 Years After US Banking Collapse, Implosion of Megabank Poised to Decimate the Global Economy
