Here's What Deutsche Bank's Huge Problems Mean for It and for the Global Economy
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Version 0 of 1. Deutsche Bank (DB) and its shares are under heavy pressure, and the bank's fate has serious implications for the global economy. In a June 29 report, the International Monetary Fund said Deutsche Bank appeared to be "the most important net contributor to risks" in the global banking system. At around the same time, the Federal Reserve announced that Deutsche Bank's U.S. unit had failed its annual stress test for a second straight year. Along with the victory of "Brexit" proponents in the U.K., those assessments from regulators have hammered Deutsche Bank's stock price, although the shares had been trending lower already. The stock is down 18% since just before the Brexit results and 43% so far in 2016. Earlier this month, Deutsche Bank's U.S.-listed American depositary receipts hit their lowest levels ever. Legendary investor George Soros made a $111 million bet that Deutsche Bank stock would fall in the wake of the Brexit vote. Only foolish investors would think that now is the time to pick up Deutsche Bank stock on the cheap. Let's look in more detail at what this large German bank's problems are and what they mean for the world. So what is Deutsche Bank's problem? Yes, the Brexit has had a hugely negative impact on its fortunes. Deutsche Bank has significant operations in the City and could see those operations adversely affected when Britain departs the European Union. In addition, the Brexit vote is just one more piece of economic news that has increased global financial volatility and shaken investor confidence. But Deutsche Bank has been struggling well before the Brexit. It lost 6.7 billion euros last year. Its stock has fallen from the beginning of the year as noted above, and the bank has no real plans for how it plans to turn things around. Furthermore, Deutsche Bank appears to be overleveraged and may lack the capital to survive a financial crisis or recession. The Fed said "broad and substantial weaknesses" still existed in its capital planning. |