by Bix Weir, Road to Roota:
Big day tomorrow for the criminals over at Deutsche Bank as they report their 2nd quarter earnings. Yes, they will likely be 100% rigged to look good after dumping TRILLIONS in derivatives to US Banks like JPM and Goldman Sachs as well as the rumored Backdoor Bailout from China but there is only so much lipstick you can put on a pig like DB.
The Street is expecting around 0.52 earnings per share which I think is wildly optimistic even with the “creative accounting” that will surely be involved this quarter. Here’s the last 4 quarters…
|Fiscal Quarter End||Date Reported||Earnings Per Share|
But the BIG issue is not necessarily the EPS but rather the Outlook going forward as S&P has recently put them on Negative Watch and unless they can convince the ratings agencies that their future is all “Wishes and Rainbows” I think Deutsche Bank will get that dreaded DOWNGRADE triggering countless derivative contracts that depend on their maintaining their Investment Grade BBB+ credit rating.
And here’s the rub…in the 2008 crash of Lehman Brothers the ratings agencies had Lehman Brothers and AIG ratings at “A” Investment Grade (an even higher rating then DB is now). The next day they went bankrupt and the ratings agencies had to be dragged in front of the US Congress to get their lashings.
So do you think that the ratings agencies will risk that type of embarrassment again by keeping Deutsche Bank as an Investment Grade Rated bank right before they collapse?
NOT A CHANCE!
So unless Deutsche Bank pulls out a Hail Mary earnings report with strong guidance expect a DOWNGRADE of Deutsche Bank to BELOW investment grade in the coming weeks.
And that’s bad as most derivatives that are written by the issuing company have a triggering requirement of maintaining an investment grade rating.
Should be a fun couple of days!
May the Road you choose be the Right Road.
PS – We are getting down to the end of July and most of the expected chaos is manifesting…except the markets which could fire off at any second! Private Road Members can shift my Timeline article forward for about 2 weeks and things will begin to make sense…
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