Do you know the story of the Deutsche Bank?Do you know the present situation of this large European Bank?If you are invested in the stock market then you should know because it may be next trigger of the financial crisis.
Deutsche Bank is the largest German bank.It is an investment bank which operates worldwide.In 2008 when we had our last financial crisis,the institutions like Deutsche Bank played a vital role.
In order to make huge profits ,the investment banks made riskier investments with other’s money.And ultimately they ended up with a cash crunch.Many investment banks were bailed out by US government in 2008.The insurance giant AIG also had to be bailed out.This is because banks are interdependent.If one huge bank goes down then it is going to take many businesses with it.
Lehmann was the only investment bank which was not bailed out at that time leading to a massive financial crisis.
Recently Deutsche Bank is fined $14 billion by Department of Justice(DOJ) for selling mortgage-backed securities in huge quantity in America. Deutsche Bank has made risky investments in the energy sector also.It has large exposure in the energy sector at a time when the oil prices are collapsing.
The following are the cause of concern for the bank now:
- $14billion dollar fine by DOJ.
- Revenues were down 21percent and profits 94percent.
- Angela Merkel said no bailout for banks with tax payers money.
While this might not be another Lehmann moment but concerns do exists.
Recently many hedge funds withdraw their money with the bank.The market capitalization of the bank fell to $16 billion from $50 billion.
Deutsche Bank has failed the stress test.This means in the case of an economic downturn, Deutsche Bank will not be able to handle the stress.So if anything goes wrong with the economy now due to other reasons, this bank is going to pop up.We have plenty of concerns now which might lead to economic downturn.The US election could be the one.Or the next rate hike could be the one.
In a situation where Angela Merkel has said that there will be no bailout, the concerns are bigger.If something goes really wrong, it will give a jolt worldwide.