Diving Into Deutsche Bank’s “Passion to Perform” Balance Sheet

Deutsche Bank shares have collapsed to lows deep under crisis lows and collapse of Lehman in the Great Financial Crisis. What’s going on?

An investigation of Deutsche Bank’s “Passion to Perform” balance sheet provides the clues.

The above clip from Deutsche Bank’s First Quarter 2016 Statement.

Details in red from page 61 (PDF page 63) of the 126 page report.

Key Liabilities

• €559 billion deposits
• €562 billion negative derivatives
• €151 billion long term debt

World’s Most Systemically Dangerous Bank

Zero Hedge commented on the World’s Most Systemically Dangerous Bank.

Here’s the key chart.

Deutsche Bank Share Price

What Went Wrong?

Deutsche Bank’s price to book value is 0.251.

Effectively the market suggests Deutsche Bank is worth 75% less than book value. Why?

1. Is it derivatives?
2. Are bank assets over-inflated?
3. Other assets prices inflated?
4. Liabilities understated?
5. What about Brexit?

Brexit is the easiest explanation to throw out. Share prices started collapsing a second time starting at the beginning of 2014.

The bank has always been heavy in derivatives. Although recent activity may have led to losses or more scrutiny, it’s relatively easily to discard that as the primary answer.

Banking Sector Malaise

Instead of pondering the obvious problems, what about other things?

1. Targe2 imbalances starting to matter
2. Italian banking woes starting to matter
3. Rising chance that Eurosceptic leaders take control of Italy.
4. What if Eurozone intrabank balances are in question?

My best guess is that Deutsche Bank share prices reflect all of the above but something in the second set of reasons, or something we still do not fully understand is the primary reason behind the collapse.

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• Is the ECB Bailing Out Italian Banks on the Sly?
• Target2 Imbalances Grow: ECB Overtakes Greece as Third Largest Debtor

Mike “Mish” Shedlock