One month ago when we showed that while Deutsche Bank is seriously undercapitalized it still has access to copious amounts of liquidity, which at June 30 stood at €223 billion but according to today’s Q3 report has since dropped by some 10% to €200 billion, we pointed out one way that DB’s currently safe liquidity position could turn precarious: it has deposits, and thus there is an all too real threat depositors may get nervous and start pulling them out. To wit:
This is where Deutsche Bank is very different from Lehman, and far riskier, because if the institutional panic spreads to the depositor base, which as the table below shows amounts to some €566 billion in total, and €307 billion in retail deposits…
… then all bets are off.
Which is why it is so critical for Angela Merkel to halt the plunging stock price, an indicator DB’s retail clients, simplistically (and not erroneously) now equate with the bank’s viability, and the lower the price drops, the faster they will pull their deposits, the quicker DB’s liquidity hits zero, the faster the self-fulfilling prophecy of Deutsche Bank’s death is confirmed.
Which is why it is so critical for Angela Merkel to halt the plunging stock price, an indicator DB’s retail clients, simplistically (and not erroneously) now equate with the bank’s viability, and the lower the price drops, the faster they will pull their deposits, the quicker DB’s liquidity hits zero, the faster the self-fulfilling prophecy of Deutsche Bank’s death is confirmed.
Which is why we mostly ignored today’s better than expected headline financial data reported by the German lender, (as did most of Wall Street it appears judging by the stock’s tepid reaction), especially after the recent disclosure that DB is currently probing its derivative book for potential missmarking, something which would drastically change the bank’s reported P&L and balance sheet, and instead focused on something far simpler: its deposits.
What we found was troubling: in the just concluded quarter, Deutsche reported that its total deposit base had shrunk by a very substantial 5%, sliding from €565.645 to €540.609. But even more concering was the most liquid “sight deposit” category, which DB tracks as “interest-bearing demand deposits on its books. It was this that plunged by a whopping 13% from Q2 to Q3, sliding from €156.2 billion to €135.9 billion as of Sept. 30.
This was the biggest drop recorded since the bank reorganized its various divisions and started breaking out demand deposits as a standalone category in its quarterly presentations. It was also the lowest amount of demand deposits on DB’s books going back to Q4 2014 and perhaps further.
On its face, this data means that in the third quarter, DB’s depositors pulled a substantial amount of savings held at the bank, precisely the outcome that the bank was eager to avoid, and hints of the start of a very unpleasant bank “jog” by the bank’s depositors. And since deposits declined, assets had to be impacted as well, and sure enough, total cash and central bank balances declined from $123 billion to $108 billion.
As of this moment there was no update from DB management, whether the documented deposit flight continued into the month of October when DB’s woes became particularly acute, and whether the jog had become a run.
via http://ift.tt/2fjpTLp Tyler Durden