Deutsche Bank - They think its all over.....
Discussion
stongle said:
Those working in the oil industry don't get treated with the same vitriol that anyone whom works in a bank does. Sure there are casino like operations, particularly in the shadow banking sector (which is barely touched by regulations directly); but the culpable areas for GFC were tiny (a few k) in comparison to the sector as a whole (100s of K). There are areas of banks that are socially useful, particularly given Monetary Policy (banks are the on/off ramp). Sure that's a whole different area of debate; and perhaps we need to move to a fiscal base (its arguable that using leverage to acquire assets has driven a schism between the rich and poor in society - think BTL - I digress!).
Ok, Worlds biggest violin for some of us.
Just enter some kind of hippy camp and you might not say that, Ok, Worlds biggest violin for some of us.
The reality is both industries have some dodgy stuff going on, and also a lot of good (banks being socially useful, oil industry proving material to keep society running until it moves onto another energy source). It's just that it's not helpful to blame the "customers" as some here seem to do when the reality is that it was a small number of people within the industry who were dodgy. Part of it is down to the customer, but to a certain extent the customer will not understand everything as they are not properly involved in the industry.
stongle said:
Loads of debate on here (a lot is nonsense), so in response to the comment on not enough regs let me explain how poor understanding, law of unintended circumstances and simplistic use of metrics is no longer appropriate or why DB isn’t as shaky as some imply.
DB on the surface looks shaky given the explosion in their CDS spread from 94bps in Dec to 230+ on 30th Sept. CDS is the insurance you buy in case of a default; the more you pay the higher the perceived risk (or so it went).
Since the GFC, the G20 and in-turn FSB, BIS, governments etc have been tinkering with banks resource base and how they deploy balance sheet, liquidity and capital in to the game. It’s clear that pre-2007 risk pricing was b*llocks in most areas of the financial sector (and if anyone thinks banks are bad; shadow banking is worse)
One of the many measures being introduced to stem risk taking (on top of loss absorbing margins & IFRS9 etc etc); was to look at bank liabilities. Initiatives called Minimum Standard for Eligible Liabilities and / or bail in + the Bank Recovery & Resolution Directive adjusted the credit waterfall of a banks liabilities (not all liabilities are the same) so the early example is not great NOR does it go anyway to explaining the transformative nature of balance sheets and how deposits (often NMDs) or Repos can be turned into securities and vice versa (which is critical to understand extension of balance sheet / credit). Anyway.
In very, very simple terms if you adjust the credit recovery waterfall of a bank’s liabilities’ different liability holders get paid in a different order.
Previously unsecured debt was highly ranked; however post these regs (in particularly German implemented on 1st Jan); is pushed down the credit waterfall. In fact unsecured debt is ranked lower than derivative liabilities, deposits and operational liabilities. So if a bank fails; the bond holders may lose their principal to re-capitalise the bank (but just in-front of the Equity holders).
As CDS is generally linked to the unsecured debt tranches of a bank (with an inbuilt recovery rate of 40%); this waterfall restructuring lowers the recovery rate to 30% pushing out the CDS spread.
The probability of default hasn’t changed BUT the recovery rate has. Significantly.
Widening CDS spreads is often looked at a measure of solvency; but it no longer is. It also effects how some firms invest (CDS spread above X makes it a no go); as investment guidelines have not yet caught up with rate of regulatory change.
Add this with a few bits of heresy, active shorting and rumours on a fine; people have added 1+1+1+1 = 879. And the short sellers profit.
Blaming bankers for the wrongs of the world is nonsense, anyone whom took debt or invested in Equity (especially if passive) is part to blame for the current state of the world; but asking for it all to be made Janet & John for the masses is like trying to uninvent the atom bomb. And I’m pretty sure less people know how to build one of them than buy Apple shares.
Be interesting to see the Markit Indicies for CDS mapped over the last 5 years for Deutsche Bank vs. other organisations. DB on the surface looks shaky given the explosion in their CDS spread from 94bps in Dec to 230+ on 30th Sept. CDS is the insurance you buy in case of a default; the more you pay the higher the perceived risk (or so it went).
Since the GFC, the G20 and in-turn FSB, BIS, governments etc have been tinkering with banks resource base and how they deploy balance sheet, liquidity and capital in to the game. It’s clear that pre-2007 risk pricing was b*llocks in most areas of the financial sector (and if anyone thinks banks are bad; shadow banking is worse)
One of the many measures being introduced to stem risk taking (on top of loss absorbing margins & IFRS9 etc etc); was to look at bank liabilities. Initiatives called Minimum Standard for Eligible Liabilities and / or bail in + the Bank Recovery & Resolution Directive adjusted the credit waterfall of a banks liabilities (not all liabilities are the same) so the early example is not great NOR does it go anyway to explaining the transformative nature of balance sheets and how deposits (often NMDs) or Repos can be turned into securities and vice versa (which is critical to understand extension of balance sheet / credit). Anyway.
In very, very simple terms if you adjust the credit recovery waterfall of a bank’s liabilities’ different liability holders get paid in a different order.
Previously unsecured debt was highly ranked; however post these regs (in particularly German implemented on 1st Jan); is pushed down the credit waterfall. In fact unsecured debt is ranked lower than derivative liabilities, deposits and operational liabilities. So if a bank fails; the bond holders may lose their principal to re-capitalise the bank (but just in-front of the Equity holders).
As CDS is generally linked to the unsecured debt tranches of a bank (with an inbuilt recovery rate of 40%); this waterfall restructuring lowers the recovery rate to 30% pushing out the CDS spread.
The probability of default hasn’t changed BUT the recovery rate has. Significantly.
Widening CDS spreads is often looked at a measure of solvency; but it no longer is. It also effects how some firms invest (CDS spread above X makes it a no go); as investment guidelines have not yet caught up with rate of regulatory change.
Add this with a few bits of heresy, active shorting and rumours on a fine; people have added 1+1+1+1 = 879. And the short sellers profit.
Blaming bankers for the wrongs of the world is nonsense, anyone whom took debt or invested in Equity (especially if passive) is part to blame for the current state of the world; but asking for it all to be made Janet & John for the masses is like trying to uninvent the atom bomb. And I’m pretty sure less people know how to build one of them than buy Apple shares.
From memory there was the spike you refer to (as well as global economic concerns) which caused most financial services CDS rates to move to c2013 highs earlier this year - but I'm assuming thereafter Deutsche Bank has moved away from the main pack?
NRS said:
It's just that it's not helpful to blame the "customers" as some here seem to do when the reality is that it was a small number of people within the industry who were dodgy. Part of it is down to the customer, but to a certain extent the customer will not understand everything as they are not properly involved in the industry.
I'm not aware of anyone trying to blame the customer entirely just recognising that the causes of the GFC were wide and varied, and plenty of people need to take their share of responsibility.We are in danger of confusing different issues now, but there are certainly plenty of customers who've bought things they don't understand and then complain when things go wrong!!
Ok I have no banking knowledge but I spend a lot of of time working in Germany for German companies. One thing I've noticed Germany buys German! What I mean by that is Look at today's announcement of support for DB from a load of big name German companies. The big share holders of these companies are often region governments, the workers' council also have a huge influence on how a company operates. Never underestimate how much support will be given to a German business without official Federal government aid. It's not as blatant as the French state support but Germany runs a highly protective system that prevents overseas takeovers and influence. Just a personal view point from the schnitzel face no expertise in high finance beyond my piggy bank.
R39S1 said:
Ok I have no banking knowledge but I spend a lot of of time working in Germany for German companies. One thing I've noticed Germany buys German! What I mean by that is Look at today's announcement of support for DB from a load of big name German companies. The big share holders of these companies are often region governments, the workers' council also have a huge influence on how a company operates. Never underestimate how much support will be given to a German business without official Federal government aid. It's not as blatant as the French state support but Germany runs a highly protective system that prevents overseas takeovers and influence. Just a personal view point from the schnitzel face no expertise in high finance beyond my piggy bank.
The issue is well over 2/3rds of the total GDP of Germany. Welshbeef said:
The issue is well over 2/3rds of the total GDP of Germany.
2 Trillion dollars, really? The message I've got from this thread is that banking is about confidence. Watch the German combination of Government and industry work together to provide that confidence in a way we wouldn't in the UK or USA. Very very unusual to see a large German company go under or be taken over by an overseas business the way we take as normal.R39S1 said:
2 Trillion dollars, really? The message I've got from this thread is that banking is about confidence. Watch the German combination of Government and industry work together to provide that confidence in a way we wouldn't in the UK or USA. Very very unusual to see a large German company go under or be taken over by an overseas business the way we take as normal.
Aren't you forgetting what the UK government did to support UK banks in 2008/9?sidicks said:
Aren't you forgetting what the UK government did to support UK banks in 2008/9?
Not at all that was very clear government support. I said that German industry and government work together in a different way to the UK. Merkel has said no bail out. I'm saying I think (and it's only an opinion) that there will be huge co operation between industry, regional and national government to provide the confidence in DB to allow it to survive. I'm probably wrong, this is only based on working with German companies and observing how protectionist they are to other German companies, no knowledge of banking or complex finance claimed. R39S1 said:
Not at all that was very clear government support. I said that German industry and government work together in a different way to the UK. Merkel has said no bail out. I'm saying I think (and it's only an opinion) that there will be huge co operation between industry, regional and national government to provide the confidence in DB to allow it to survive. I'm probably wrong, this is only based on working with German companies and observing how protectionist they are to other German companies, no knowledge of banking or complex finance claimed.
Ok, understood.My point was that, as well as directly 'bailing out' a small number of UK banks, more importantly the Bank of England provided liquidity support to the wider banking system.
BigLion said:
Be interesting to see the Markit Indicies for CDS mapped over the last 5 years for Deutsche Bank vs. other organisations.
From memory there was the spike you refer to (as well as global economic concerns) which caused most financial services CDS rates to move to c2013 highs earlier this year - but I'm assuming thereafter Deutsche Bank has moved away from the main pack?
Don't have the data currently, but seem to remember that DB CDS spread was higher earlier in the year. As there is yet to be bail in equivalence across the globe, might be difficult to get comparibles as the recovery rate (assumed) will differ - can't see Commerzbank as a good guide for numerous reasons! Not having access to BBG at home, I wonder if the CDS spiked when the rating agencies removed implicit state support. From memory there was the spike you refer to (as well as global economic concerns) which caused most financial services CDS rates to move to c2013 highs earlier this year - but I'm assuming thereafter Deutsche Bank has moved away from the main pack?
It's interesting that DB is deemed to big to fail, when governments want to advance CCP and credit mutualisation. Create a bigger concentration of risk, with lower loss absorbency for its users seems bonkers.
SNAFU.
stongle said:
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Blaming bankers for the wrongs of the world is nonsense, anyone whom took debt or invested in Equity (especially if passive) is part to blame for the current state of the world; but asking for it all to be made Janet & John for the masses is like trying to uninvent the atom bomb. And I’m pretty sure less people know how to build one of them than buy Apple shares.
Bankers used to be a trusted profession; for many, that trust has gone. -
Blaming bankers for the wrongs of the world is nonsense, anyone whom took debt or invested in Equity (especially if passive) is part to blame for the current state of the world; but asking for it all to be made Janet & John for the masses is like trying to uninvent the atom bomb. And I’m pretty sure less people know how to build one of them than buy Apple shares.
sidicks said:
Which advisers are you referring to?
Of course where advisors have provided poor advice, they can be sued, and rightly so.However, poor advice means inappropriate or misleading advice, not simply that the recommended advice turned out to be less portable than anticipated.
stongle said:
but asking for it all to be made Janet & John for the masses is like trying to uninvent the atom bomb.
Lots of good comments stongle. But on this last point I strongly disagree. (It just so happens I studied atomic physics 
)It is precisely because the priests speak in Latin that the masses have limited opportunity to understand what is happening. Abbreviations and financial jargon have been thrown around on this thread as if to create a thread within a thread to which only the chosen few can reasonably respond. Given that this is a car forum, I actually think it is more constructive if we "Janet & John" the thread. (Nice turn of phrase, BTW, I think I will nick it).
As I said earlier, when our MPs are representatives of the people and make unrealistic or unsustainable promises, we cannot expect them to have the solution. The banking system is really quite straightforward to understand without an academically rigorous training (unlike physics!). I come back to my earlier point: it is the nature of money that lies at the root of the previous financial crisis. For example, there was some discussion a while back on money creation and I think there was some comment that the bank always has to have the money available to redeem. Whilst it's true the bank needs funding lines at all times, that doesn't mean the cash is already there. That's the nature of fractional reserve banking: for every dollar on deposit, there are another ten in loans.
In case anyone is interested in further reading, the concept of money as a commodity out of which we may create more financial instruments has been commented about for millennia. Start with Aristotle and move on to the 11th century philosopher, Al Ghazali. Some of what the latter commented on is quite extraordinary and prescient if anyone has an interest in the history of money. He specifically talked about the real economy vs financial economy. (As an aside, you might also discover that Aquinas "borrowed" a lot from Ghazali; some of Aquinas' work seems to be a direct translation).
Or for a simpler read, try the anthropologist David Graeber. Before the bankers blow a gasket, yes he's the guy who fronted the Occupy Wall St movement but all the more reason for bankers to understand what makes the guy tick. His book Debt: The First 5000 Years is an excellent and easy read.
Harris_I said:
Lots of good comments stongle. But on this last point I strongly disagree. (It just so happens I studied atomic physics )
It is precisely because the priests speak in Latin that the masses have limited opportunity to understand what is happening. Abbreviations and financial jargon have been thrown around on this thread as if to create a thread within a thread to which only the chosen few can reasonably respond.
Plenty of concepts within banking can be explained in simple terms, plenty can't. The fact that some aspects of banking - like many things - are not readily understandable by the layman is not necessarily a problem or a sign that something unduly complex is taking place. Having said that, it should be possible to explain some of the more technical concepts to those with an open mind and willingness (and aptitude) to learn - plenty of posts have been provided to help such people. The issue comes with those who don't understand the topics but who think that they do and who have not intention of listening to those trying to explain things to them. )It is precisely because the priests speak in Latin that the masses have limited opportunity to understand what is happening. Abbreviations and financial jargon have been thrown around on this thread as if to create a thread within a thread to which only the chosen few can reasonably respond.
Harris_I said:
Given that this is a car forum, I actually think it is more constructive if we "Janet & John" the thread. (Nice turn of phrase, BTW, I think I will nick it).
This phrase arises from the characters in primary school reading books from a few decades ago!BigLion said:
stongle said:
Loads of debate on here (a lot is nonsense), so in response to the comment on not enough regs let me explain how poor understanding, law of unintended circumstances and simplistic use of metrics is no longer appropriate or why DB isn’t as shaky as some imply.
DB on the surface looks shaky given the explosion in their CDS spread from 94bps in Dec to 230+ on 30th Sept. CDS is the insurance you buy in case of a default; the more you pay the higher the perceived risk (or so it went).
Since the GFC, the G20 and in-turn FSB, BIS, governments etc have been tinkering with banks resource base and how they deploy balance sheet, liquidity and capital in to the game. It’s clear that pre-2007 risk pricing was b*llocks in most areas of the financial sector (and if anyone thinks banks are bad; shadow banking is worse)
One of the many measures being introduced to stem risk taking (on top of loss absorbing margins & IFRS9 etc etc); was to look at bank liabilities. Initiatives called Minimum Standard for Eligible Liabilities and / or bail in + the Bank Recovery & Resolution Directive adjusted the credit waterfall of a banks liabilities (not all liabilities are the same) so the early example is not great NOR does it go anyway to explaining the transformative nature of balance sheets and how deposits (often NMDs) or Repos can be turned into securities and vice versa (which is critical to understand extension of balance sheet / credit). Anyway.
In very, very simple terms if you adjust the credit recovery waterfall of a bank’s liabilities’ different liability holders get paid in a different order.
Previously unsecured debt was highly ranked; however post these regs (in particularly German implemented on 1st Jan); is pushed down the credit waterfall. In fact unsecured debt is ranked lower than derivative liabilities, deposits and operational liabilities. So if a bank fails; the bond holders may lose their principal to re-capitalise the bank (but just in-front of the Equity holders).
As CDS is generally linked to the unsecured debt tranches of a bank (with an inbuilt recovery rate of 40%); this waterfall restructuring lowers the recovery rate to 30% pushing out the CDS spread.
The probability of default hasn’t changed BUT the recovery rate has. Significantly.
Widening CDS spreads is often looked at a measure of solvency; but it no longer is. It also effects how some firms invest (CDS spread above X makes it a no go); as investment guidelines have not yet caught up with rate of regulatory change.
Add this with a few bits of heresy, active shorting and rumours on a fine; people have added 1+1+1+1 = 879. And the short sellers profit.
Blaming bankers for the wrongs of the world is nonsense, anyone whom took debt or invested in Equity (especially if passive) is part to blame for the current state of the world; but asking for it all to be made Janet & John for the masses is like trying to uninvent the atom bomb. And I’m pretty sure less people know how to build one of them than buy Apple shares.
Be interesting to see the Markit Indicies for CDS mapped over the last 5 years for Deutsche Bank vs. other organisations. DB on the surface looks shaky given the explosion in their CDS spread from 94bps in Dec to 230+ on 30th Sept. CDS is the insurance you buy in case of a default; the more you pay the higher the perceived risk (or so it went).
Since the GFC, the G20 and in-turn FSB, BIS, governments etc have been tinkering with banks resource base and how they deploy balance sheet, liquidity and capital in to the game. It’s clear that pre-2007 risk pricing was b*llocks in most areas of the financial sector (and if anyone thinks banks are bad; shadow banking is worse)
One of the many measures being introduced to stem risk taking (on top of loss absorbing margins & IFRS9 etc etc); was to look at bank liabilities. Initiatives called Minimum Standard for Eligible Liabilities and / or bail in + the Bank Recovery & Resolution Directive adjusted the credit waterfall of a banks liabilities (not all liabilities are the same) so the early example is not great NOR does it go anyway to explaining the transformative nature of balance sheets and how deposits (often NMDs) or Repos can be turned into securities and vice versa (which is critical to understand extension of balance sheet / credit). Anyway.
In very, very simple terms if you adjust the credit recovery waterfall of a bank’s liabilities’ different liability holders get paid in a different order.
Previously unsecured debt was highly ranked; however post these regs (in particularly German implemented on 1st Jan); is pushed down the credit waterfall. In fact unsecured debt is ranked lower than derivative liabilities, deposits and operational liabilities. So if a bank fails; the bond holders may lose their principal to re-capitalise the bank (but just in-front of the Equity holders).
As CDS is generally linked to the unsecured debt tranches of a bank (with an inbuilt recovery rate of 40%); this waterfall restructuring lowers the recovery rate to 30% pushing out the CDS spread.
The probability of default hasn’t changed BUT the recovery rate has. Significantly.
Widening CDS spreads is often looked at a measure of solvency; but it no longer is. It also effects how some firms invest (CDS spread above X makes it a no go); as investment guidelines have not yet caught up with rate of regulatory change.
Add this with a few bits of heresy, active shorting and rumours on a fine; people have added 1+1+1+1 = 879. And the short sellers profit.
Blaming bankers for the wrongs of the world is nonsense, anyone whom took debt or invested in Equity (especially if passive) is part to blame for the current state of the world; but asking for it all to be made Janet & John for the masses is like trying to uninvent the atom bomb. And I’m pretty sure less people know how to build one of them than buy Apple shares.
From memory there was the spike you refer to (as well as global economic concerns) which caused most financial services CDS rates to move to c2013 highs earlier this year - but I'm assuming thereafter Deutsche Bank has moved away from the main pack?
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