DB - Deutsche Bank AG

[glorysk87]

Well, via put options, the most I can lose is 100% of notional if DB gets wiped out in the next 6 weeks so it'd be a hit of <2% to portfolio performance this year.

 

That's assuming the absolute worst case scenario. If all my covered puts went bust for all positions I've sold them on, it'd be a loss of around 5% and would reduce the optionality value that I have in holding cash. A reasonable trade off for the 5-10% returns I'm earning on that cash in periods measured in weeks and not months.

 

Minor correction: 100% of notional minus the premium you collected :)

[SharperDingaan]

TwoCitiesCapital & SharperDingaan,

Thanks for your replies. The only balls still active in production I have are in my two Logitech Wireless Trackball M570. Personally, I stopped breeding about 25 years ago. Other balls still active  [not in productive environment], but only for pleasure and fun.

 

I really need to think about this.

 

What are your perceptions of your potential downsides of your positions?

 

 

We're pretty sure our real risk is just volatility and not a wipe-out. DB is a GSIB and backed by the Bundesbank - whether they wish to publicly acknowledge it or not. We're also pretty confident the Germans will not tolerate the ruthless mocking - if they can't get their sh1t together.

https://en.wikipedia.org/wiki/List_of_systemically_important_banks

 

We only have 2500 shares, and 3-4 euro is not a big stretch.

 

SD

 

 

 

 

 

 

[dwy000]

The possibility of them going bust is virtually nil.  But there's a pretty wide acknowledgement that they will need to issue additional new equity which could dilute the crap out of the existing stock price.

[SharperDingaan]

The possibility of them going bust is virtually nil.  But there's a pretty wide acknowledgement that they will need to issue additional new equity which could dilute the crap out of the existing stock price.

 

Agreed, that were it you or I that would be the outcome ... but this will be a central bank solution, and reputation is on the line. It wouldn't surprise us to see a whole lot of 'special' CoCo/QE and long term repos. Probably some dilution, but not the major dilution that most are thinking of.

 

SD

[Spekulatius]

The possibility of them going bust is virtually nil.  But there's a pretty wide acknowledgement that they will need to issue additional new equity which could dilute the crap out of the existing stock price.

 

Agreed, that were it you or I that would be the outcome ... but this will be a central bank solution, and reputation is on the line. It wouldn't surprise us to see a whole lot of 'special' CoCo/QE and long term repos. Probably some dilution, but not the major dilution that most are thinking of.

 

SD

 

If the German government will have to bail them out, DB stock is toast. The bailout would look more like Fannie/Freddie Mae than TARP. I can't emphasize how much ill will Banks have in Germany with politicians and the German populace.

[John Hjorth]

SharperDingaan, Spekulatius & dwy000,

 

Yes, I'm sorry for wrong phrasing - this bank will not formally fail - as GSIB bank - but in worst case, continued operations of the bank will rely on liquidity - in one form or another - provided by Deutsche Bundesbank.

 

Old news, but in my opinion still worth a read in the situation: DB Press Release of 15th September 2016.

 

Please note the statement:

The bank confirms market speculation of an opening position by the DoJ of USD 14 billion and that the DoJ has invited the bank as the next step to submit a counter proposal.Deutsche Bank has no intent to settle these potential civil claims anywhere near the number cited. The negotiations are only just beginning. The bank expects that they will lead to an outcome similar to those of peer banks which have settled at materially lower amounts.

 

This CNBC article is about the potential size of of the future settlement, based on prior RMBS-settlements.

[dwy000]

I'm not sure liquidity is the concern.  They have over $250bn of liquidity (more than Goldman) and full access to central bank.  The issue is that they are over leveraged.  They will need  both new capital as well as to deliver the Vance sheet - which will impact profits. 

 

This is a gamile more than investment because the base business and the possible outcomes are unknowable.

[dwy000]

sorry, that was meant to be " delever the balance sheet".  Damn auto correct.

[John Hjorth]

I'm not sure liquidity is the concern.  They have over $250bn of liquidity (more than Goldman) and full access to central bank.  The issue is that they are over leveraged.  They will need  both new capital as well as to deliver the Vance sheet - which will impact profits. 

 

This is a gamile more than investment because the base business and the possible outcomes are unknowable.

dwy000,

 

What I meant with "... liquidity - in one form or another ..." was actually "capital". You entry something on the asset side of the balance sheet, and something on the liabilities and equity side af the balance sheet - under equity, to get down leverage.

[SharperDingaan]

One has to think this is going to be a sovereign-to-sovereign deal, that benefits both parties politically. Nothing says they have to pay the fine right away. Payment guaranteed by the Bundesbank, over 5-10 years, makes a lot more sense for everybody. The only issue is how much.

 

SD 

[Sunrider]

That ain't how it's going to work - implicitly or explicitly, German politics prevents it.

 

Also, despite what things may look like from the other side of the pond, Germany does not run the EU and whilst some people think this is tit-for-tat for the aapl tax thing, I don't think that there will be horse trading of this nature.

 

One has to think this is going to be a sovereign-to-sovereign deal, that benefits both parties politically. Nothing says they have to pay the fine right away. Payment guaranteed by the Bundesbank, over 5-10 years, makes a lot more sense for everybody. The only issue is how much.

 

SD

[John Hjorth]

Saturday I spent several hours reading 1H2016 and 2015 financials of DB,and other DB primary sources.

 

This is the first time I have ever spent so many hours without getting to some kind of conviction about what the investment might be worth. This bank seems to me to be involved in "just about everything", that it is - at least for me - impossible to evaluate P/L and B/S. To me, this is called "activity bloat".

 

A comparison of the balance sheet of DB with i.e. SAN and WFC will tell you what this is about.

 

For me, this goes into the too hard pile. I won't touch it - at least for now.

[KinAlberta]

 

Berkshire Hathaway, Deutsche Bank, Ford: Doug Kass' Views

Doug Kass shares his thoughts on how friends don't let friends do Deutsche Bank and how Berkshire Hathaway is no longer your father's Berkshire Hathaway.

 

Doug Kass

Oct 10, 2016

 

https://www.thestreet.com/story/13846766/1/berkshire-hathaway-deutsche-bank-ford-doug-kass-views.html

[SharperDingaan]

 

Berkshire Hathaway, Deutsche Bank, Ford: Doug Kass' Views

Doug Kass shares his thoughts on how friends don't let friends do Deutsche Bank and how Berkshire Hathaway is no longer your father's Berkshire Hathaway.

 

Doug Kass

Oct 10, 2016

 

https://www.thestreet.com/story/13846766/1/berkshire-hathaway-deutsche-bank-ford-doug-kass-views.html

 

Our basic premise is that even if you were an outside German analyst, in Germany, you wouldn't be able to analyse this pig with any degree of comfort. We can all do the analysis, but there is so much 'make-up' on this pig - that it's pretty pointless. Instead we look at how German banks fall into the general two-tier German Corporate Governance structure, DB's place within it, and what we would expect the Bundesbank place within DB to be. 

 

We assume their derivative book is essentially the evil sister of AIG, Long Term Capital, and Lehman. There are a lot of collective one-way directional trades in it (AIG), it'll work out over time as long as they can stay solvent (Long Term Capital), and there are no counterparty issues (Lehman). Keep them alive, let them work it out, and everybody lives; the good news is that it's THE German bank, & the Bundesbank is not prone to sloppy execution.

 

We only need a % gain in the high teens to get what we want, and we're already up 6% in the 2 weeks since purchase.

Another 2-3 positive news stories & we're pretty much there.

 

Long term we wouldn't touch DB, we far prefer SAN;

but to keep up to date we need to make the occasional euro-bank trade.

 

So far it has worked out fairly well.

 

SD 

   

[John Hjorth]

Looking good so far as of today for my fellow board members, who have the mindset and guts to do this trade.

[TwoCitiesCapital]

Looking good so far as of today for my fellow board members, who have the mindset and guts to do this trade.

 

Of course, at this point I wish I'd purchased the common, but that's hindsight. Not unhappy with the total 6.2% return I've made on my cash covering the puts in less than 4 weeks.

 

 

[John Hjorth]

Looking good so far as of today for my fellow board members, who have the mindset and guts to do this trade.

 

Of course, at this point I wish I'd purchased the common, but that's hindsight. Not unhappy with the total 6.2% return I've made on my cash covering the puts in less than 4 weeks.

TwoCitiesCapital,

 

Good luck! [<- Put a smiley here ... - no, make it five, - perhaps that will urge Kraven out of his posting hibernation on the board!] - also to SharperDingaan.

[SharperDingaan]

We exited our DB today.

 

Net of the USD gain and the FX effect, it came out to a raw gain of just under 25% - for 2 months of exposure.

We were just in it for Xmas money, it's worked out very well, & we're OK with leaving something on the table. 

 

SD

[John Hjorth]

Posted by Spekulatius in the "What are you buying today" topic:

 

...Speaking of the DB shipwreck, the price is almost back to where it was in 2016. Are they better or worse off than back in 2016? I have a hard time telling. ...

 

Does any of our fellow board members have any opinion about DB as of now?

[dwy000]

Having worked there and having worked pretty closely with the new CEO and COO in the past I can only reiterate that the definition of stupidity is doing the same thing over and over and expecting a different result.  They are smart and capable but they are definitely not "shake up the institution", "do things differently", "take the bull by the horns" candidates.  They are status quo.  For that reason I can't imagine why the existing issues will go away, the direction will change or the results will be materially different.

[John Hjorth]

Thank you for sharing your assessment here, dwy000,

 

I just lost any inclination to look at DB again after reading your post.

[Contra123]

Having worked there and having worked pretty closely with the new CEO and COO in the past I can only reiterate that the definition of stupidity is doing the same thing over and over and expecting a different result.  They are smart and capable but they are definitely not "shake up the institution", "do things differently", "take the bull by the horns" candidates.  They are status quo.  For that reason I can't imagine why the existing issues will go away, the direction will change or the results will be materially different.

 

One thing a DB guy used to say is don’t buy DB stock until it goes to €10. Was not exactly confidence-instilling.

[Viking]

It really is instructive looking at how the US and how Europe dealt with their respective banks post Great Recession. The US took a very hard approach and forced the big US banks to recapitalize and hit them with Dodd Frank. It was 7 years of very tough love (and hard work) and it in only in the past 18 months that C and BAC have finally emerged.

 

Europe took a very different approach.

 

The end result is the US banks are now firing on all cylinders and the European banks are still struggling with legacy issues. And most importantly for investors the US banks are winning in the marketplace. Competitive positioning (versus the large European banks) is another tailwind for the large US banks.

[John Hjorth]

It really is instructive looking at how the US and how Europe dealt with their respective banks post Great Recession. The US took a very hard approach and forced the big US banks to recapitalize and hit them with Dodd Frank. It was 7 years of very tough love (and hard work) and it in only in the past 18 months that C and BAC have finally emerged.

 

Europe took a very different approach.

 

The end result is the US banks are now firing on all cylinders and the European banks are still struggling with legacy issues. And most importantly for investors the US banks are winning in the marketplace. Competitive positioning (versus the large European banks) is another tailwind for the large US banks.

 

It's true, Viking. - And thank you.

 

I would like anybody here on CoBF to just post the name of DB Chairman of the Board based on your knowledge without doing any search - all other information about this person will be for me goodies [or not].

 

Who is actually running, and taking responsibility for running, DB right now?

[Spekulatius]

It really is instructive looking at how the US and how Europe dealt with their respective banks post Great Recession. The US took a very hard approach and forced the big US banks to recapitalize and hit them with Dodd Frank. It was 7 years of very tough love (and hard work) and it in only in the past 18 months that C and BAC have finally emerged.

 

Europe took a very different approach.

 

The end result is the US banks are now firing on all cylinders and the European banks are still struggling with legacy issues. And most importantly for investors the US banks are winning in the marketplace. Competitive positioning (versus the large European banks) is another tailwind for the large US banks.

 

I feel the lack of profitability due more competition and the very low interest rates in Europe has more to do with the ailement or lack of performance of the European banks than difference in regulation.

 

The problem with DB is that the German home market is very competitive. DB used to do 3% NIM in the 80’s ( then best in class) which fell to <1.5% NIM now. This is one reason why they expanded to US investment banking with the Bankers Trust takeover in 1998. Playing poker with the big boys in Wall Street never worked out for them.

 

Give the US banks the same 2% NIM than the British bank generate, or the <1.5% that German Banks generate and they wouldn’t look much better either, IMO.