Banking sector will be ground zero for job losses from AI and robotics

From The Conversation.

Deutsche Bank CEO John Cryan has predicted a bonfire of industry jobs as automation takes hold across the finance sector. Every signal is that he will be proved right very soon.

Those roles in finance where the knowledge required is systematic will soon disappear. And it will happen irrespective of how high a level, how highly trained or how experienced the human equivalent may currently be. Regular and repetitive tasks at all levels of an organisation already do not need to be done by humans. The more a job is solely or largely composed of these routines the higher the risk of being replaced by computing power.

The warning signs have been out there for a number of years as enthusiastic reports about artificial intelligence have been tempered with fears about significant job losses in most sectors of the economy.

Many roles have already all but disappeared in the march towards a fully digital economy. Older readers may recall typesetters, typists, and increasingly, switchboard operators and back room postal workers, as work of the last century. And the changing nature of work is relentless.

Cryan shame? Deutsche Bank’s CEO. EPA/ARMANDO BABANI

Banking on jobs

The finance sector was once driven by human judgement and decision making. But slowly, it has changed. One-to-one conversations with your local bank manager were replaced by scripted call centre interactions during the 1990s. Today, increased processing power, massive cloud storage, strong encryption and an increase in the use of blockchain make possible tasks that had previously been seen as too complex for automation to be done quickly and consistently without any human intervention.

Artificial intelligence reduces the need for human work that requires analysis, consistent applications of decisions and judgement calls. These are pivotal actions for many legal and financial activities. Combined, in the background, with blockchain – essentially a publicly shared automated ledger of agreed contracts – arrangements that require some form of trust between two parties will also be able to be completed with little or no human intervention.

Blockchain is the basis of every cryptocurrency – forms of money exchanged online. Banks are slowly working towards ways of embracing these alternative systems. While alternative forms of money attract popular headlines it is the automation behind the scenes that is most compelling aspect for the finance sector. By removing the influence of human decision making from as many processes as possible, a fully digital supply chain can be created. As artificial intelligence learns more about the impact and influence of every process each time it happens, a bank’s efficiency should continuously improve, and profits increase, with fewer and fewer employees.

Protected

In this atmosphere of change to the world of work in banking, however, there are some roles that will prove more resistant to change. Work that is unpredictable or inherently people-focused will survive. Customer service staff will still need to tackle the inevitably complex queries that are the product of the human mind rather than the outcome of algorithms. AI will deal with most enquiries, but will inevitably need to transfer the most cryptic to a human interlocutor. Mortgage decisions, for example, will come as an automatically generated message; more intricate questions will still require face-to-face conversations.

At the other end of the (pay) scale senior executives will continue to steer the direction of their individual organisations, although the nature of their work will subtly change to become technology-based decisions. Executives will find themselves choosing an algorithm instead of directly making a high-risk investment decision, or they may end up selecting an artificial intelligence machine rather than interviewing people to become employees. Reduction in the wage bill at other levels of the business and the increasing significance of the few human decisions that need to be made may even assist in justifying their annual bonuses.

Inevitable change

The traditional banking sector is an obvious area for artificial intelligence and automation to generate competitive advantages for companies. This is a result, in part, of previous reluctance to embrace change. In the late 1990s there was a collective hysteria around the Y2K bug and fear of a wholesale shutdown of computers which failed to cope with the millennium date change. That highlighted the sector’s uneasy relationship with fast-moving technological change. But even this public panic prompted few immediate, practical changes.

Now, mobile app-only banks, with no branches, such as N26 and Monzo, challenge the traditional banking sector and its human resources legacy. Traditional banks are still largely oriented towards humans doing most of its work. In 2016, over 1m people, or 3.1% of the UK workforce, were employed in the finance services sector, which is the biggest tax contributor to the UK economy and the country’s largest exporter. Most predictions claim around 50% of the jobs in the sector will be lost. Depending on who you listen to, this process will take between five and 20 years.

The impact of these changes will be felt across the entire economy. There exists a genuine fear that artificial intelligence, robotics and fully digital businesses may contribute to a significant increase in the gap between rich and poor.

Deutsche Bank’s CEO is being frank about a future where jobs in banking and elsewhere will become ever more scarce as digital business becomes a reality. This realisation has reinvigorated calls for a universal basic income (UBI) or a social dividend in the UK and elsewhere. The proposal has found support with some MEPs as a means to maintain personal levels of prosperity in this new world. Crucially too, the UBI would seek to maintain the foundations of the current Western economy in an era of increasingly fully automated digital businesses – a goal, if achieved, which might also just about keep the current finance and banking sector in business.

Authors: Gordon Fletcher, Co-director, Centre for Digital Business, University of Salford; David Kreps, Senior Lecturer in Centre for Digital Business, University of Salford

Deutsche Bank Fined For Rigging FX Trading

The US Federal Reserve has announced two enforcement actions against Deutsche Bank AG that will require bank to pay a combined $156.6 million in civil money penalties.

The Federal Reserve on Thursday announced two enforcement actions against Deutsche Bank AG that will require the bank to pay a combined $156.6 million in civil money penalties. The bank will pay a $136.9 million fine for unsafe and unsound practices in the foreign exchange (FX) markets, as well as a $19.7 million fine for failure to maintain an adequate Volcker rule compliance program prior to March 30, 2016.

In levying the FX fine on Deutsche Bank, the Board found deficiencies in the firm’s oversight of, and internal controls over, FX traders who buy and sell U.S. dollars and foreign currencies for the organization’s own accounts and for customers. The firm failed to detect and address that its traders used electronic chatrooms to communicate with competitors about their trading positions. The Board’s order requires Deutsche Bank to improve its senior management oversight and controls relating to the firm’s FX trading.

The Board is also requiring the firm to cooperate in any investigation of the individuals involved in the conduct underlying the FX enforcement action and is prohibiting the organization from re-employing or otherwise engaging individuals who were involved in this conduct.

Separately, the Board found gaps in key aspects of Deutsche Bank’s compliance program for the Volcker rule, which generally prohibits insured depository institutions and any company affiliated with an insured depository institution from engaging in proprietary trading and from acquiring or retaining ownership interests in, sponsoring, or having certain relationships with a hedge fund or private equity fund.

The Board also found that the firm failed to properly undertake certain required analyses concerning its permitted market-making related activities. The consent order requires Deutsche Bank to improve its senior management oversight and controls relating to the firm’s compliance with Volcker rule requirements.

Deutsche Bank’s To Raise €8 Billion Capital And Tweaks Strategy

From Moody’s

On Sunday, Deutsche Bank AG announced an €8 billion fully underwritten common equity capital raise and some major course corrections to its 2020 strategic plan. These measures, on top of the firm’s progress in de-risking its balance sheet, are positive for DB bondholders. Most importantly, the capital raise gives DB more time and financial leeway to achieve the revised 2020 plan, although sustainable improvement to the bank’s credit strength and ratings will depend on the success of its ongoing reengineering. With plenty for management still to do, capital and liquidity protection and strong strategic execution will continue to drive DB’s creditworthiness this year.

The fully underwritten €8 billion equity capital raise will increase DB’s fully loaded common equity Tier 1 ratio by about 200 basis points to more than 14% pro forma as of year-end 2016, significantly improving its capital position relative to its closest global investment bank peers, especially considering the reduction in tail risk resulting from a settlement with the US Department of Justice announced in late 2016.

The capital raise is a powerful response to the challenges DB faced in 2016, and will allow the bank to pursue business and revenue growth more assertively following losses in 2016 that hindered efforts to strengthen and stabilize profitability and led to some customer and counterparty attrition. The settlement with the Justice Department has helped alleviate concerns, and momentum has picked up in many businesses this year, aided by improved market conditions.

Along with the capital raise, DB announced five key components to the latest recalibration of its strategic plan. They are the following:

  • Retain, rather than dispose of, Deutsche Postbank AG and merge it with DB’s domestic operations, thereby eliminating the Postbank ring-fencing, which would make retail liquidity more fungible and increase the potential for cost efficiencies
  • An initial public offering of a minority stake in Deutsche Asset Management to provide a new share currency that DB can use for retention and recruitment of investment management talent and for potential expansion
  • Reconfigure the existing Global Markets, Corporate Finance and Transaction Banking businesses into a single Corporate and Investment Banking division to generate additional cost savings and pursue a strategy more focused on cross-selling to real economy corporate clients
  • Some senior management changes, including the creation of two deputy CEO positions
  • Board approval of upcoming Additional Tier 1 coupons and an intention to reinstate the common dividend at a rate of €0.11 per share in May 2017

Management indicated further restructuring costs of approximately €2 billion through 2020 and a plan to establish a legacy portfolio of approximately €46 billion of risk-weighted assets, mostly in the form of legacy rates and credit positions and other non-core assets.

The decision to retain, rather than dispose of, Postbank is a major strategic reversal. If approved by regulators, the plan to integrate Postbank into DB’s existing German private and commercial banking and wealth management businesses may eventually bring bondholder benefits in the form of fungible liquidity across the bank, and a greater contribution of earnings from German retail banking, bringing more balance to the business mix. Streamlining and refocusing these businesses will help DB build leaner, more profitable franchises that more closely match its long-term strategic goal to simplify and de-risk the bank while revitalizing its operating platform and processes.

At this stage, however, we think large cost savings will prove difficult to achieve. In 2016, DB reported an 84% cost-to-income ratio for Postbank and an 83% cost-to-income ratio for the Private, Wealth & Commercial Clients segment, illustrating the formidable execution challenge the bank will face to reach its 65% target. The task is further complicated by the fact that Postbank owns BHW, a savings and loan association whose business model is particularly challenged by the low interest rate environment.

Deutsche Warns Global Economy About To Roll Over, Says “Sell”

From Zero Hedge.

When Trump unexpectedly won the election, and futures staged one of their most dramatic rebounds in history, surging from limit down to solidly in the green, Wall Street promptly goalseeked their economic assumptions “chasing the price”, quickly going from bearish to bullish, and nobody did it faster or more conclusively than Deutsche Bank, which seemingly overnight flipped from one of the biggest bearers of gloom on the outlook for the US economy, to one of its biggest cheerleaders.

That however changed overnight, when DB’s European equity strategist Sebastian Raedler highlighted that, according to the latest flash PMIs, global growth momentum hit a six-year high in January.

And with global macro surprises close to their all-time high – much of which has been predicated on the relentless debt-creation by China which just got instruction to slow down dramatically in the current quarter – the DB strategist says they are likely to roll over from current elevated levels, resulting in a slowdown in global growth in the coming months.

From his full set of observations, first here are the good news:

Global growth momentum hits a six-year high: in mid-January, our indicator of global macro surprises rose to 45, the highest level since May 2010. This points to a further rise in global manufacturing PMI new orders from the December level of 53.7, implying they are now at a six-year high and consistent with 2017 global GDP growth of 3.5% at market FX terms (a sharp acceleration from the 2.6% realized growth over the past four quarters).

The rebound in growth momentum has been the main driver of the sharp moves in asset prices over the past six months:

  • Global equities have continued to track global macro surprises over the past year (with an R2 of 70%), rebounding by 15% on the back of the 50 point rise in macro surprises since mid-2016;
  • US 10-year bond yields have moved in line with global PMIs since the end of the financial crisis in 2009 (with an R2 of 75%): after the Brexit vote in June 2016, they had undershot this relationship (pricing in a sharply negative growth shock), but then rebounded by 100bps to re-couple with improving growth momentum (though, at 2.5%, they are still slightly below the fair-value level suggested by that relationship, at 2.8%, potentially because of the technical obstacle of extreme short positioning).
  • European cyclicals versus defensives have rebounded by 25% since early July to reach a 10-year high, the sharpest cyclical rally since 2009, in line with rebounding macro surprises.

And now the bad:

 We believe global macro momentum is likely to roll over from current elevated levels:
  • Global macro surprises have only been higher 5% of the time since 2003 (when the data series starts), typically roll over from these elevated levels and have shown first signs of softening over the past week;
  • Global PMIs are already consistent with global GDP growth 50bps above our economists’ 2017 growth forecasts of 3%, despite the fact that the latter incorporate aggressive assumptions for fiscal stimulus in the US;
  • Chinese PMIs are already close to a six-year high, having rebounded by 7 points over the past 15 months. They point to quarterly annualized GDP growth of 8%+ (above the government’s target of 6.5%) and the credit impulse (a key driver of SoE fixed asset investment) is set to turn negative. This suggests the risk to Chinese growth momentum is now to the downside;
  • Our model of global PMIs suggests global growth momentum has rebounded because of the easing in financial conditions due to tighter HY spreads and a reduced drag from USD strength as well as lower global uncertainty. However, it also implies that the rebound in growth momentum should start to fade, as the lagged benefit from falling commodity prices is wearing off.

Not surprisingly, it will all start with the world’s “marginal” growth economy China:

So if DB is right and the global economy is about to roll over, just as Trump begins his presidency, how should one trade it? Simple: by derisking, i.e. selling stocks.

 Trade recommendations: Lower macro surprises would be consistent with a tactical pull-back for equities (especially against the backdrop of still-elevated readings on our market sentiment indicators) as well as a roll-over in cyclicals versus defensives.

DB’s conclusion: “the equity market looks stretched“, and furthermore the bank’s proprietary exuberance indicator has continued rising above a level of 70: “in 7 out of 8 instances over the past 10 years, the market has fallen over the following month (by up to 10%, but 2% on average).”

Finally, there is no more “cash on the sidelines” – cash holdings for US mutual funds are close to a 5-year low, suggesting that little money remains on the sideline waiting to come into the market.

Deutsche Bank turmoil shows risks of weakening bank capital standards

From The Conversation.

Deutsche Bank, a venerable 146-year-old bank whose very name symbolizes the German financial system, has recently found itself in considerable turmoil.

The kicker came in September when the Department of Justice slapped it with a US$14 billion fine for alleged wrongdoing during the financial crisis. But Deutsche Bank was already being buffeted by a string of bad news. Its stock price has slumped over the past year due to a decline in investment banking and dim prospects for its commercial banking business.

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This has led to speculation about whether the German government will have to bail it out and, if it doesn’t, whether markets will soon experience another “Lehman moment” – referring to how the collapse of the U.S. investment bank sparked a global financial meltdown in 2008.

As I see it, these concerns obscure the much deeper problem that afflicts the European banking sector and that a bailout alone will do nothing to resolve: a lack of capital.

It also offers a stark warning for U.S. regulators amid talk of changes to banking rules – especially Dodd-Frank – under the new administration. While some changes to the U.S. financial system may be worthwhile, easing capital standards would be a mistake and make another financial crisis much more likely.

Instead, regulators on both sides of the Atlantic need to make sure there’s no question their banks are able to withstand a shock – whether a billion-dollar fine or something much more severe.

Why Deutsche Bank won’t be bailed out

While allowing a bank that has the size and prominence of Deutsche Bank to fail is obviously an event that could have seismic repercussions, bailing it out is not something that would be easy for the German government to do.

There are many reasons for this. One is reputational. Angela Merkel, the German chancellor, has been critical of other governments (especially in Europe) for using taxpayer funds to bail out their banks.

Second, there is little support among German taxpayers for the bailout, so it would also be politically costly.

While it’s interesting to speculate about this, there are other questions that are even more pertinent. First, what is the real problem here? Why is Deutsche Bank in the mess it finds itself in? What can we do to prevent our major financial institutions from being so fragile in the future?

There are many factors responsible for what ails Deutsche Bank. Perhaps none figures more prominently than its capital position during and after the crisis.

Who’s the riskiest of them all?

Among its peer institutions, Deutsche Bank is the riskiest based on its “leverage ratio,” which essentially measures how much equity capital it has as a percentage of total assets.

On June 30, its leverage ratio stood at a shockingly low 2.68 percent, or about half the average for the eight biggest U.S. banks, according to the Federal Deposit Insurance Corporation. That means it had only $2.68 in equity for every $100 in assets.

A low ratio means it has less cushion if there’s a problem. Since banks are required to mark many of their assets to market, an adverse price movement that reduces the value of its assets by just 3 percent would completely wipe out its equity.

We can see that the bank’s low capital is bad from at least two perspectives. One is that a 2.68 percent leverage ratio is less than what Bear Stearns had (2.78 percent) in early 2008 before it collapsed and had to be rescued by the U.S. government via a deal with JPMorgan Chase.

Another is that under the Basel III’s capital rules, banks are required to have a leverage ratio exceeding 3 percent. As an interesting contrast, U.S. bank regulators have adopted a 5 percent minimum leverage ratio for domestic banks. (One caveat is that European regulators [European Banking Authority] gave Deutsche Bank a ratio of 2.96 percent earlier this year,slightly higher than what the FDIC gave it, but still very worrisome.)

The ‘doom spiral’

Extensive academic research has revealed that a lot of bad things can happen when a bank has critically low capital.

One is that its internal culture gets skewed in favor of growth and excessive risk taking. Deals that can make the bank a lot of money if they pan out (but can also cost the taxpayers a lot) become more attractive. The other consequence is that there is “debt overhang” – so much debt that shareholders are unwilling to infuse any more equity into the bank since most of the benefits of the new equity will flow to the depositors and other creditors.

So this creates a sort of “doom spiral”: More equity is needed to rescue the bank, but excessive debt stands in the way. So the government finds itself on the horns of a dilemma, either let the bank fail or infuse taxpayer money to rescue it.

Finally, more highly levered banks also make a bigger contribution to systemic risk, which is the risk that the whole system will fail, as we saw during the financial crisis.

We see some evidence of these forces operating at Deutsche Bank. Reports suggest the bank is unlikely to raise new equity because its stock price is “too low” and trading at about 25 percent of the book value of its equity. That means the market thinks the value of the bank’s equity is worth just 25 cents when the bank’s balance sheet states it as one dollar. Put slightly differently, if Duetsche bank states its shareholders equity on its balance sheet as $100, the market will actually pay only $25 to buy it.

One reason for the low stock price is its dim business prospects, thanks to anemic economic growth in Europe and tighter banking regulations. The other, of course, is the aforementioned debt overhang.

With such low capital, it is also hardly surprising that its U.S. unit failed the Federal Reserve Bank’s stress test in June. The only other major bank that failed was the U.S. unit of Santander. When a bank fails a test, it is not allowed to remit dividends back to its parent company and may face harsher sanctions. In addition there is reputational damage and potential loss of customer trust, which can be very damaging to the stock price.

Moreover, consistent with the predictions of academic research, the International Monetary Fund named the bank as “the most important net contributor to systemic risk.” In other words, by keeping capital that is too low from a prudential regulation standpoint, Deutsche Bank is creating risk, not only for itself but for the whole global financial system.

The real concern

So, the real problem for global financial stability is not whether Deutsche Bank will be bailed out. It is the question of what bank regulators are going to do to get more equity capital into banking.

In this regard, U.S. bank regulators have done considerably better than European (and Japanese) bank regulators. During the financial crisis, the U.S. government took equity stakes in banks, effectively recapitalizing them. When the shareholders of these banks repurchased the government’s stakes, private equity capital replaced taxpayer-provided capital, and the U.S. banking system ended up on a much sounder footing as a result.

By contrast, this did not happen in Europe. In fact, banks in Europe lobbied their bank regulators to water down the Basel III capital rules so as to avoid having to raise billions of euros in new capital. As a result, banking fragility in Europe remains considerably higher than in the U.S.

What should be done going forward? I think the single biggest regulatory imperative in banking is to get banks to have significantly higher capital ratios, both in the U.S. and in Europe, although the problem in Europe is more pressing.

And American taxpayers and bank regulators cannot afford to be smug about American banks being better capitalized than European banks. There may be lobbying of the new administration to water down capital requirements but doing so will be bad for the economy, both here and globally. Hopefully we will not repeat the mistakes made in Europe.

We live in a highly interconnected global financial system. European banking fragility imperils the U.S. and indeed the global financial system. Bailouts generally do not foster future financial stability; higher capital does. That’s where the answer lies.

Author: Anjan V. Thakor, Professor of Finance, Washington University in St Louis

Deutsche Bank Surprises On The Upside

From AFP Via The West Australian.

Troubled German lender Deutsche Bank reported Thursday a surprise 256-million-euro ($279 million) profit in the third quarter, compared with a loss of more than six billion in the same period last year.

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Deutsche outdid the expectations of analysts surveyed by Factset, who had predicted it would book a loss of 949 million euros between July and September.

The group said revenues increased to 7.5 billion euros, slightly up from 2015’s third quarter, driven by 10-percent growth in its trading division.

Revenues declined in all other business areas, which Deutsche said was largely down to the “impact of the ongoing low interest rate environment”.

“We continued to make good progress on restructuring the bank,” chief executive John Cryan said in a statement.

Financial markets and politicians have been closely watching the fortunes of Germany’s biggest lender as it goes through a painful restructuring and deals with the fallout of the financial crisis.

It was labelled “the most important net contributor to systemic risks in the global banking system” by the IMF in June.

CEO Cryan acknowledged the “unsettling” effect of a $14-billion fine demand from the US Department of Justice in September over Deutsche’s role in the mortgage-backed securities crisis, news of which sent the bank’s share price to historic lows of 9.90 euros.

“The bank is working hard on achieving a resolution of this issue as soon as possible,” Cryan said.

A source told AFP in late September the bank was in talks with the DoJ to reduce its fine to around 5.4 billion euros, although the final figure could change.

Why Deutsche Bank stock fell so far

From The Conversation.

Deutsche Bank is in the news for all the wrong reasons. Some speculators believe that it will be the 2008 Lehman Brothers collapse all over again. Shares in the bank were briefly driven down to single digits. They seem to have stabilised around €10 but this remains well below the €30 just over a year ago and €100 a share in 2007. And the bank’s future is uncertain.

Clearly investors are worried and there is an absence of people who believe even €10 would be a sensible investment. At €10 per share, an investor has a right to €48 of equity. But the problem is whether that €10 will ever be returned to you – let alone with gains. Like many other banks though, Deutsche Bank faces a number of headwinds, which have knocked its profits in recent years.

New regulation since the financial crisis requires that banks must accumulate their profits to create a greater cushion against the risks that became apparent in 2008. This means that the profits that Deutsche will earn over the next few years will be used to increase the size of that cushion rather than being returned to shareholders. Relief is unlikely, as the IMF has identified Deutsche as “the most important net contributor to systemic risks in the global financial system”.

Large well-established banks have a second problem. They have become fat with too many employees juggling outdated, disparate and often dysfunctional IT systems. Deutsche has more than 100,000 employees. Its retail branches – a number of which have been cut this year – are labour intensive and add to these problems.

Dealing with this problem requires reinvesting some of its profits in restructuring its activities – which again means less money for shareholders in the short-run. Failure to do so, however, will create opportunities for new entrants to the banking market such as alternative finance and new fintech operations.

The European Central Bank’s negative interest rate policy is compounding problems. Historically, banks benefited from retail depositor inertia – depositors that park their money in accounts and don’t act upon earning little or no interest. A healthy deposit base ensured a source of zero or low-cost funds that could be lent elsewhere. But the benefit of depositor inertia disappears when interest rates go negative as it costs money to service these customers with extensive retail networks. Imposing user fees is unpopular with customers.

Crisis catalyst and management

These structural issues are well known. The catalyst for the recent action is a US$14 billion fine from the US Department of Justice for mis-selling mortgage bonds a decade ago. Deutsche is looking to negotiate a smaller figure, but if the $14 billion fine sticks the bank could need to raise another €9 billion of equity. At current prices, hapless investors would need to subscribe an additional 60% of their investment to simply hang on to the share of future profits that they expected to receive prior to the fine.

While Deutsche talks confidently of lowering its fine, it is unlikely to attract buyers for its stock. Meanwhile, speculators betting on a decrease in the share price are pushing an open door. Plus, given the dysfunctional nature of eurozone financial regulation, the high political costs of German government intervention and risk of signalling that larger eurozone members play by a different set of rules – the German government will be slow to intervene.

Adding to this complexity, the fine from the US government comes just days after the US$13 billion fine the EU hit Apple with, making some suspicious that there is an element of revenge at play. True or not, the uncertain outcome during the lengthy appeals process will only increase the perceived risks of an investment in Deutsche Bank.

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From the sidelines, one would be sympathetic to the CEO’s statement that Deutsche is a strong bank that is being targeted by “forces that want to weaken us”. The bank has assets of more than €1.8 trillion and equity of €67 billion.

As a large, complex entity, it is easy for outsiders to speculate that the bank may be weak, further eroding investor and customer confidence in both the bank and European bank regulation. The coming days will largely determine whether the negative feedback loop between confidence and the stock price can be broken. At worst, the outcome will be significant economic and political difficulties in the coming weeks. At best, it may create a sense of urgency within the eurozone to comprehensively address the banking sector issues that have festered for the past eight years.

Author: Eamonn Walsh, Professor of Accounting, University College Dublin

Deutsche Bank “Settlement” Phony

At the end of last week, shares in Deutsche Bank rebounded somewhat on the rumor that a settlement had been reached with the US Department of Justice. Stock markets followed. However, the rumour has not been substantiated.  So how will the markets react now?

db-30-sep-2016According to the latest from Zero Hedge,

… the AFP “story” of a $5.4 billion revised settlement between DB and DOJ was indeed “sources” on Twitter, and had no basis in reality. The reason: not only has John Cryan barely started the negotiations with the DOJ, and is set to arrive in the US this week to beg for mercy, but as the WSJ, which broke the original settlement story more than two weeks ago just reported, Deutsche Bank’s settlement talks with the DOJ are continuing, “with no deal yet presented to senior decision makers for approval on either side.

The talks are moving forward, but they have “not progressed to a degree that a proposed deal has reached senior-level review at the Justice Department or with Deutsche Bank’s supervisory board, people familiar with the matter said.”

While there is much more information one could hope for in what is now the most important litigation in capital markets, we will gladly take what the WSJ reports over the market-manipulating garbage spewed by AFP with the sole intent of getting both DB and the market to close higher.

Some more details from the WSJ: “People familiar with the continuing settlement talks say details remain in flux. Justice Department lawyers have floated the possibility of also reaching accords with other European banks who have yet to resolve similar investigations and announce them at once, but no such move is certain, the people say.”

The WSJ also adds that CEO John Cryan plans to be in Washington, D.C. this week for meetings of the International Monetary Fund and World Bank. The visit has stoked speculation that he could delve in person into ongoing talks with the Justice Department. The Deutsche Bank spokesman declined to comment on any matters related to talks with Justice Department.

In addition it is worth remembering that DB capital ratios are below many other comparable banks, as this data from Moody’s shows. DB is 3.4% tier 1.

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