According to IMF, “Among the globally systemically important banks, Deutsche Bank (DB) appears to be the most important net contributor to systemic risk”. This statement had raised lot of concerns in the global market.

Last week few of the large hedge funds withdrew their prime brokerage business from DB, resulting in decline of its share price by 6.7% to US $11.50. Last time DB was trading at those levels was past 30 years. DB’s gross derivatives exposure is understood to exceed US $50 trillion and a liquidity run from more clients withdrawing their business may force DB to start unwinding some of these positions.

The biggest issue with the global investors is the systemic risk among the globally systemically important banks (GSIB), as illustrated below:


Secondly, US department of justice had recently announced US $14 billion fine to DB. This fine is equivalent to about 89% of its current market capitalization of US $15.8b. The fine is also double to what its current holdings for provisioning. If we compare its market capitalization with shareholders equity, then it represents only 23% of US$69b shareholders equity.

The distress looks spilled over to the second biggest Germany bank, Commerzbank. They announced they will cut 7,300 jobs (representing 15% of work force) and cease to pay dividends until further notice. The market capitalization of Commerzbank stand at US$8.1b.

Aziz Dodhiya is the chief investment officer for the Valueoperations funds which operates in the Indian market as an FPI (Foreign Portfolio Investor). We do not offer any personal advice to buy or sell any stocks and the views that are shared by Aziz might not incline to your personal investment strategy and this is the reason we advise you to take professional advice before going ahead with our views.