- Deutsche Bank equity and debt securities plunged on after reports that “hedge funds had withdrawn money held as collateral at the bank for their derivatives transactions and other positions.”
- This sounded very Lehman like to investors
- Deutsche’s Chief, John Cryan has said that DB has strong fundamentals and the reports of hedge funds had aroused unjustified concerns.
- WSJ reported that some hedge funds who had pulled money also handsomely profited from by shorting DB.
- DB was not and is not going to fail. The DOJ $14B penalty isn’t realistic either
- The big worry is DB’s $60T derivatives book (the gross exposure of the bank’s contracts)
- “DB’s net exposures are sufficiently large to blow up the financial system.”
- All this could impact U.S. homeowners via interest rates
- “Dollar Funding Stress is Back”
- If rising LIBOR impacts housing, could put more stress on Fed to not raise rates
- Bloomberg says 59% chance of raise in Dec, but odds are against chances of rate increase in 2017