Deutsche Bank in Free Fall. Shares, CoCo Bonds Plunge. Merkel Gives Cold Shoulder on Bailout. Bank Denies Everything
- Deutsche Bank in Free Fall. Shares, CoCo Bonds Plunge. Merkel Gives Cold Shoulder on Bailout. Bank Denies Everything
by Wolf Richter, http://wolfstreet.com/ , 26 Sep 2016
When will she buckle?
Shares of Deutsche Bank got bashed 7.6% today, to €10.49 in Frankfurt, down 67% from April 2015, to the lowest level since they started trading on the Xetra exchange in 1992. They traded below that level in the early 1980s, but decades of inflation have whittled down the purchasing power so much that comparisons are meaningless. Deutsche Bank’s 5-year default probability spiked to the highest level this year.
Its balance sheet, bloated with opaque risks, equals 58% of Germany’s GDP. It lost €6.8 billion last year. To hang on another day and to prop up Tier 1 capital, it has raised $20 billion in capital, in 2010 and 2014, by selling shares and diluted existing shareholders, and by issuing contingent convertible bonds.
These infamous “CoCos” are designed to be “bailed in” before taxpayers get to foot the bill. Thus, they’re a measure of investor fears about getting bailed in.
So when heck and high water came earlier this year, the bank responded by announcing on February 12 that it would buy back $5.4 billion of its own bonds! Everything soared! Even CoCos, though not included in the buyback, rose 24% over a few weeks. We have long ridiculed this manipulative move [here’s detailed explanation… Deutsche Bank’s CoCo Bonds Speak of Fear of the Worst].
Now shares hit new lows, and the miserable CoCos are getting clobbered, dropping 2.7% today to 73 cents on the euro, down 28% from April 2015 when they still traded at 102 cents on the euro. They’re now just a smidgen from also setting new lows.
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