Germany's biggest bank is in big trouble again.
What's been happening at Deutsche Bank Aktiengesellschaft (NYSE: DB) is scary – because it may not be the only giant bank in trouble.
Of course, Deutsche Bank officials say they've got plenty of capital and liquidity.
But that's what "Too Big to Fail" (TBTF) banks always say, and what their regulators want the public to believe, even as they privately censure them because of their "troubled condition."
Here's what's happening at Deutsche Bank and what the Fed thinks about the giant bank's health…
The Canary's Still Singing
If you're not familiar with the analogy, a "canary in a coal mine" refers to when coal miners would bring small birds down into the mines with them to detect dangerous gasses, like carbon monoxide. The bird would succumb well before the miners would, giving them plenty of time to get back to safety. Sad for the bird, sure, but it was an effective warning.
Now it looks like Deutsche Bank might be the canary, a flashing sign that the big banks could once again tank the stock market and the global economies.
Deutsche Bank's U.S. operations have drawn regulatory heat for years. The Federal Reserve Bank of New York slammed DB in 2014 over repeated reporting failures and lack of follow-through on agreed-to fixes.
Deutsche Bank's U.S. operations failed the Fed's stress tests in 2015, in 2016, and again in 2017.
In each of those years, DB was hit with Fed enforcement actions for serious rules violations, including perceived lax controls tied to currency trading, money laundering, and Volcker rule trading restrictions, as well as paying billions of dollars to settle allegations stemming from U.S. Justice Department investigations.
Last year, the Fed quietly censured DB over controls measuring its exposure to clients and how it valued collateral on loans when examiners complained about the bank's inability to calculate its exposures.
The Fed called DB's condition "troubled." That slap on the wrist came to light on May 31.
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The censure by the Fed also landed the bank's FDIC-insured subsidiary, Deutsche Bank Trust Company Americas, on the FDIC's "Problem Banks" list of at-risk institutions.
Hours after Deutsche Bank's stock crashed to all-time lows, Standard & Poor downgraded DB's credit rating to BBB+ from A-, three notches from junk, citing "significant execution risks in the delivery of the updated strategy amid a continued unhelpful market backdrop."
S&P said it initiated the review on April 12 this year after Christian Sewing, a DB-lifer most recently in charge of retail and commercial banking, replaced John Cryan as CEO.
The rating agency cited how repeated leadership changes posed questions over DB's long-term direction and cited chronically low profitability. Specifically, S&P said the bank "appears set for a period of sustained underperformance compared with peers, many of whom have now finished restructuring."
New CEO Sewing, in a letter to staff following the downgrade, said that the bank's financial strength is "beyond doubt." About its corporate and investment bank, Sewing said, "We have a clear, strategic direction and we're well on the way to implementing what we recently announced."
Unfortunately, what they just announced was disappointing first-quarter revenue. Overall company revenue was down 5%, and net income was down 79%. Investment banking revenue was down 13%, fixed-income trading was down 16%, and equities sales revenue was down 21%.
It looks like the bank is on its way down.
About the Author
Shah Gilani is the Event Trading Specialist for Money Map Press. In Zenith Trading Circle Shah reveals the worst companies in the markets - right from his coveted Bankruptcy Almanac - and how readers can trade them over and over again for huge gains.Shah is also the proud founding editor of The Money Zone, where after eight years of development and 11 years of backtesting he has found the edge over stocks, giving his members the opportunity to rake in potential double, triple, or even quadruple-digit profits weekly with just a few quick steps. He also writes our most talked-about publication, Wall Street Insights & Indictments, where he reveals how Wall Street's high-stakes game is really played.