IThe market no longer believes in Deutsche Bank and it is bringing to light what Germany has always tried to hide. A reality that has been there for all to see for years, but which many have simply preferred to ignore so as not to "hurt the sensibilities" of the leading economy of the Eurozone: in matters of banks, Berlin not only cannot lay down the law to anyone by asking for reforms and rigor, but has a lot to learn from France, Spain, Italy and even Greece.
The panic selling that has hit the banking sector since the beginning of the year does not concern Italy alone. To demonstrate this, just look at the results obtained on the Frankfurt Stock Exchange by the leading bank in the euro area, precisely Deutsche Bank. From the beginning of the year to today, red is equal to 39,8%. Not only that, premiums on derivatives have risen to exorbitant levels and, as Federico Fubini explains on Corriere della Sera, “the cost of guaranteeing Deutsche Bank's subordinated bonds, the most at risk, implied a 30% probability of the bank defaulting within five years (with a recovery of just 20% of the principal invested thereafter). The prices on the safest bonds, on the other hand, imply a probability of default of 20%, and a recovery of no more than 40%.
Percentages so high as to push Finance Minister Wolfgang Schäuble to intervene by going against everything he has always defended and stating that "Markets are exaggerating."
Many will think: "nothing strange, Padoan did the same". True, a pity that in the case of the German institute perhaps the markets could be right. In fact, Deutsche Bank is currently so exposed to the markets that a loss of about 7% on its investments would be enough to cancel total assets of 68,8 billion euros. Indeed, according to an analysis by CreditSights, the bank could have problems paying coupons on CoCo bonds (a particular type of subordinated bond) in the event that operating results are disappointing and if the costs of the lawsuits require higher provisions than expected . Reading the balance sheet, it turns out that 952 billion of assets are purely financial, but only 71 are available for immediate sale. The rest, as recalled by the Corriere della Sera, is valued by the bank itself.
It should be emphasized that, to date, no one has reported the problems we have just told you about. The European Central Bank audited Deutsche Bank twice, establishing that there were no capital shortfalls. However, the market seems to think otherwise.
Currently almost two thirds of the German credit market is in public hands, closely linked to local politics and above all covered by state guarantees for 492 billion euros. A crystalline reality which however managed to escape the supervision of the ECB, unlike what happened in the other countries of the European Union (Italy in primis). But for Germany the state guarantees are tolerated, while for the others there is a cry of scandal.
Deutsche Bank is navigating in very murky waters and, according to investors, the German government will have to intervene to save it, in contravention of a rule that Germany itself wanted and demanded. At that point it will probably no longer be possible to deny that the rules in Europe are applied on the basis of the State which is forced to submit to them.
