I think there will be a government bailout of Deutsche Bank this year. Commerzbank may be in equally bad shape. Its shares are sliding.
If Germany’s government must intervene, then European depositors will ask themselves: Which banks are safe?
They can deposit euros in banks in every nation in the eurozone. But which banks? Which nations? Germany has been the favorite.
Some hedge funds are now pulling money out of Deutsche Bank. Bloomberg reports:
The funds, a small subset of the more than 800 clients in the bank’s hedge fund business, have moved part of their listed derivatives holdings to other firms this week, according to an internal bank document seen by Bloomberg News. Among them are Izzy Englander’s $34 billion Millennium Partners, Chris Rokos’s $4 billion Rokos Capital Management, and the $14 billion Capula Investment Management, said a person familiar with the situation who declined to be identified talking about confidential client matters.
To pull out, they must put in. This is digital money. To get your digital money out of Bank A, you must have it sent to Bank B. This is essentially simultaneous. So, the banking sector as a whole is not imperiled. The money supply does not shrink. But confidence erodes.
I don’t see any nation’s banks in the eurozone competing successfully with Germany. The Netherlands has conservative banks, but they are small. Austria is also known for its conservative banking. But the money will probably stay inside Germany’s banks.
If the government lets the bank go under, that will send a message to depositors in other countries: Germany is no longer a safe haven. Depositors — especially large depositors — will have to do due diligence in selecting banks. But today, they don’t have a lot of time. They must get off the sinking ship before it takes down its depositors. A haircut is looming.
(For the rest of my artcle, click the link.)