Deutsche
Bank stock has popped 6% today and the move was attributed to an
announcement in the Financial Times that DB was looking at buying
back several billion in senior bonds in the market at a discount
[...] it’s safe to say the jump in DB’s stock is fully attributed
to the rumor floated in Europe that the ECB was going to consider
buying big bank stocks in an effort to shore up the appearance of a
“healthy” banking system. Furthermore, DB has been relentlessly
sold and shorted since the beginning of 2016, down 31% in 25 trading
days. It was due for a technically-driven, dead-cat, short-covering
bounce. Central Bank intervention rumors being the perfect catalyst
to frighten hedge fund computers into covering shorts and moronic
perma-bulls into buying the dip.
[...]
The first
item that will be pointed out by Wall Street puppets is that a bond
buyback would enable DB to book accounting gains, thereby padding net
income and book value. But the idiocy of this logic is that gains
recognized from buying back bonds at a discount are 100% non-revenue,
non-cash generating events. In fact, a bond buyback is a use cash –
it further erodes the liquidity of the entity buying back bonds or
stock.
In addition,
if DB were to buy back its bonds in the market, why on earth would it
pre-announce this? The only result this accomplishes, other than a
brief surge in foolish optimism issued by perma-corrupt stock
analysts, is to trigger front-running into DB’s bonds thereby
increasing the overall cash cost of the bond buyback.
[...]
But let’s
take a closer look at DB’s overall balance sheet, something which
clearly no Wall Street analyst or financial bubblevision moron has
ever experienced. DB’s latest balance sheet from 9/30/15 shows
“total financial assets at fair value” of $881 billion euros; 71
billion euros of “assets available for sale; 428 billion euros in
“loans:” and 153 billion euros in “other assets.” All told
it reports 1.7 trillion euros in total assets, leading to a
declaration of 68 billion euros in “total equity” (book value).
That’s an eye-watering leverage ratio of 25x.
Now let’s
take a look at the quality of the assets listed above. DB has very
heavy asset/loan exposure to emerging markets, energy, peripheral
European credits (like Greece, Italy and Spain), commodities,
Glencore and leveraged finance/high yield. And course there’s the
60 trillion or so in derivatives.
[...]
Considering
DB’s exposure to the collapsing asset sectors listed above, this
5.8 billion write-down of what amounts to thin air anyway is nothing
short of shocking. I would conservatively estimate that the 1.53
trillion euros of financial assets + for sale assets + loans + other
assets should be written down by at least 20%. That would imply
that, conservatively, DB could write-down its assets 306 billion
euros and likely still be overstating the value of its total asset
base. A write-down of that magnitude would imply that DB has
negative net worth of 238 billion euros. In other words, DB is
technically insolvent.
[...]
The only
thing demonstrated to me by DB’s bond buyback bravado is that
investors learned nothing from 2008/2009 and bank upper management
and directors are even more corrupt now than they were 8 years ago.
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the full analysis:
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