Here’s the Lerrick Plan. It looks perfect for Italy’s Banca Monte dei Paschi di Siena. Read more
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From the latest edition of Konzept, Deutsche’s spiffy new monthly magazine:
Much bank reporting has now become so complex it has spiralled out of all control and meaning. Last year’s annual report and accounts for UBS, for example, ran to 868 pages. That is more than a threefold increase on the Swiss bank’s 2006 annual report. What is more, the calculations behind many bank disclosures these days are opaque and mostly useless to an outsider because they are deeply technical. Even professional equity analysts struggle to understand disclosures running across the whole range of banking businesses, from traditional asset and liability management to trading book and operational risk, including different methodologies for valuation, provisioning and so on.
The length of Deutsche’s 2014 annual report? 610 pages.
Deutsche Bank’s annual study of defaults has landed. Thoughts on how the next cycle for corporate borrowers might be affected by flatter yields curves below, but first a reminder of just how little money has been lost to bad debts since 2009.
We can’t overstate how low overall defaults are. The 2010- 2014 cohort is the lowest 5-year period for HY defaults in modern history (quality adjusted). To protect for default risk in BB and Single-B rated bonds over this period, investors would have only required 27bps and 94bps respectively. Current EUR/USD BB spreads are 301/350bps and Single-Bs 598/527bps. Indeed in CDS, Crossover now has 10 full years of default history. The peak 5 year default period was the 12% seen in Series 8-10 (late 2007 to late 2013). Relative to its ratings, average default risk for this index should now be around 20%. So this reiterates that recent history and average history in default terms remain remarkably far apart.
Deutsche Bank has long been an unloved stock.
Not only does it trade stubbornly below book-value, a bleak revenue outlook in January led to the promise of a major strategy rethink for the group, including the prospect of job cuts, asset sales and the streamlining of investment banking divisions.
Among options on the table is a sale of the group’s Postbank retail business — a division it acquired in 2008 in the hope of bringing deposit funding to the aid of its investment banking arm. Read more
A chart, from Deutsche, of the global pool of funds in 2014:
It’s from their annual Random Walk through the world’s financial markets. The top line: Read more
Is it because Deutsche Bank’s staff really didn’t want to offend any future employers? Selling a €6.3bn rights issue is not easy, but a group of 25 underwriters does suggest a certain lack of discernment.
Although that is fewer than four years ago, when Deutsche hired 32 of the 35 banks interested. (Who were the lonely three, we wonder?) According to the International Financing Review, those that did not deliver have missed out this time in the industry game of reciprocity. Read more
Gather round nerds, and hear the tale of Deutsche Bank’s mysterious new CoCo bonds.
It’s a tale that involves an €8bn capital raising anchored by the Qataris, some German accounting standards and one terrible cereal-based pun. Read more
Forget PPP-adjusted GDP. Deutsche Bank is trying to make international currency comparisons sexy with its Cheap Date index, part of its annual look at global price trends.
How much does it cost to take your loved one out? DB’s statistics wonks probably aren’t getting any, judging by the way they construct their index, which involves a date at McDonald’s and doesn’t even include flowers:
We have defined the “cheap date” as follows: cab rides, McDonalds burgers, soft drink, two movie tickets, and a couple of beers. Please note that in our last update we had included sending a bouquet of roses in the activities for a date. This year we have removed it as it was skewing the comparison.
File that excuse away; it might be useful next Valentine’s Day.
The index shows London as the most expensive place for a cheap date. True cheapskates should take their paramour to India: Read more
Here’s a quick update on returns in April and the year so far, courtesy of Jim Reid at Deutsche Bank.
A few surprises: British stocks were the place to be in April, while Greek shares did worse than Russian shares – at least in local currency terms. (Click chart to enlarge)
Euromoney reports on Wednesday that Citigroup is attempting to revive “leveraged super seniors,” a type of synthetic CDO not seen seen the financial crisis. We take a (no doubt unhealthy) interest in all things LSS, given our previous experience helping out on this series of Financial Times stories. The stories involved three former Deutsche Bank staff who blew the whistle on the way the German bank was allegedly valuing so-called “gap risk” on $130bn worth of LSS of trades. Read more
You’ve got to admire the audacity of Credit Suisse, Deutsche Bank, BofA Merrill Lynch and Citi: they’ve agreed to underwrite the £5.8bn Barclays rights issue, pitched at 185p on a 1-for-4 basis. Read more
Debates about asset valuation can quickly turn philosophical. The FT’s story on Deutsche Bank on Thursday provides fresh fodder, carrying allegations from three ex-employees that the bank failed to properly value certain credit derivative positions and thereby created a misleading impression of its health.
Deutsche Bank failed to recognise up to $12bn of paper losses during the financial crisis, helping the bank avoid a government bail-out, three former bank employees have alleged in complaints to US regulators.
That’s from a story by the FT’s Tom Braithwaite, Kara Scannell and Michael Mackenzie. Citing those ever-dependable people familiar with the matter, it seems three individual Deutsche staff went separately to the SEC in 2010 and 2011. What’s the collective noun for “whistleblowers.” Read more
warning update from Deutsche Bank on Tuesday (flashes via Reuters):
DEUTSCHE BANK AG PROVIDES PRELIMINARY UPDATE ON SECOND QUARTER 2012 RESULTS: COSTS IMPACTED BY CURRENCY MOVEMENTS Read more
Arguably THE banking factoid of the year, by way of Espirito Santo’s review of Thursday’s Deutsche Bank conference call (see bold):
The conference call provided the first clear indication from management that reduced capital allocated to trading operations is impacting trading revenues in the IB. This has been a strong theme that we have highlighted to clients, which first arose as a concern in 4Q11. Read more
Deutsche Bank, whose chief executive decried the stigma of tapping ECB three-year liquidity last month, has borrowed at least €5bn and as much as €10bn from the latest LTRO, the FT reports. Investors briefed by the bank’s finance director and investor relations executives say it was persuaded by the economics of the financing to abandon its concerns. Josef Ackermann had said that Deutsche was “loathe to give up” its reputation for never having taken government money. ECB president Mario Draghi revealed on Wednesday that 460 of 800 banks that funded from the February LTRO were German.
The auction process to sell Deutsche Bank Asset Management is faltering after JPMorgan and State Street withdrew from the bidding, making it more likely the bank will have to break up the business as part of a prolonged sale of the assets. Deutsche Bank had raced ahead with the sale process in the past week, narrowing interest from a wide range of potential bidders to a shortlist of a half a dozen, before the leading contenders withdrew. Ameriprise, another candidate to buy the business, is baulking at the price and could soon withdraw, the FT says, citing people familiar with the situation.
Every government needs a thick slice of luck, and this week’s has come as Chris Huhne slid off the political road into the ditch. Ed Davey has a golden chance to drive away from an energy policy which might have been designed to make energy expensive and electricity unreliable. This deadly combination might be called the Windmill Solution to oil and coal dependency, and the former Energy Secretary spent his last months flailing around like a demented turbine trying to make the numbers add up.
While Huhne was tilting at windmills, the energy game has been changed utterly by the emergence of shale gas. This rapidly emerging technology promises relatively cheap and abundant natural gas for at least the next two decades. It has already broken the link between oil and gas prices. It promises to turn the US into an energy exporter, and remove the dependency on Russian gas for the states on its borders. Read more