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How Deutsche Bank Can Destroy Europe

by Reggie Middleton, Zero Hedge:

How can Deutsche Bank destroy the EU? Capital fight and extreme, involuntary deleveraging. DB is closing nearly 200 German bank branches. Not a big deal, right? German bank’s depositor base is 111% of German GDP. A run on German banks is literally a run on the German economy…

…not to mention a major (the major) funding source for DB’s massive derivative positions.

…not to mention a major (the major) funding source for DB’s massive derivative positions.

Current news events don’t portend a positive outcome for Germany’s largest bank either. Bloomberg reports: NordLB Boosts Shipping Provisions Five-Fold, Warns of High Loss

Norddeutsche Landesbank boosted provisions for bad loans nearly fivefold to 1 billion euros ($1.1 billion), as Germany’s biggest shipping lender prepares for its first full-year loss since 2009.

NordLB, controlled by the state of Lower Saxony, posted a loss of 406 million euros in the first half as it battles a prolonged slump in maritime markets, including eight years of crisis in the container segment. That compares with a profit of 290 million euros in the same period last year.

“The shipping crisis, which further intensified in the first half of the year, has necessitated impairments that were higher than planned,” Chief Executive Officer Gunter Dunkel said in a statement. The bank lowered its outlook for the year, now anticipating a “significant” loss. It had projected a “negative result” in the spring.

… NordLB’s pessimistic view highlights risks at other German banks, which hold roughly one-quarter of the about 400 billion euros in global shipping loans. Under pressure to unwind sour legacy maritime assets, banks including HSH Nordbank AG and Commerzbank AG are also trying to shrink their loan books.

What does this have to do with Deutsche Bank? A lot! Because everybody wants to sell these assets that aren’t considered very desirable, and all at the same time, we’ve made a bad situation worse – precisely when DB can’t afford it.DB mass selling bad shiping loans

Then there’s the issue of DB’s somewhat questionable assumptions and characteristics in its financial reporting. Deutsche Bank addendums are quoted as saying:

“The credit risk on the securities purchased under resale agreements and securities borrowed designated under the fair value option is mitigated by the holding of collateral. The valuation of these instruments takes into account the credit enhancement in the form of the collateral received. As such there is no material movement during the year or cumulatively due to movements in counterparty credit risk on these instruments.”

What???!!! So, the value of collateral doesn’t move now? Not only does the value of collateral move, it tends to move in the exact same direction as the value of the loan, borrowing or underlying, often at an exaggerated pace in the beginning (it’s markets are the first to know of turmoil). Reference my podcast interview with Max Keiser at the 2:40 marker. Want some more? Read this page from our EU banking report a couple of quarters ago…

Read More @ ZeroHedge.com

Introducing Reggie Middleton…

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