Deutsche Bank: What We Know, What We Don’t Know & What We Know We Don’t Know
Deutsche Bank’s (NYSE: DB) soared higher by more than 13 percent during the U.S. trading session while its Germany-listed stock performed slightly better and gained 16 percent.
It has been well publicized that Deutsche Bank was slapped with a $14 billion fee from the U.S. Justice Department for its alleged role in contributing to the great recession fiasco. We also know that the bank essentially laughed at the figure and has said from the beginning it expects to pay a much smaller amount.
It has also been publicized that certain notable clients of Deutsche Bank have withdrawn capital from the lender amid its uncertain near-term outlook. We do not know the validity of these reports, and if true we do not know the extent of damage this could cause to the overall business.
On Friday, Deutsche Bank’s CEO wrote a memo to all of the bank’s employees to restore confidence in the bank.
Specifically, the executive said that all current capital requirements are fulfilled and a restructuring plan is on schedule. Moreover, the bank has gone through a lot of effort to de-risk itself and its balance sheet hasn’t been as stable today as it has been in 20 years.
The executive also pointed out that despite an overall difficult environment in 2016, the company still managed to post a profit of around one billion euros in the first half of 2016. In addition, the bank’s liquidity reserves stand out more than 200 billion euros which represents a very comfortable buffer.
Towards the afternoon trading session, a new report surfaced which said the U.S. Justice Department is considering closing its case with a $5.4 billion fee. The figure is less than half of the original proposed amount but it is still not known if Deutsche Bank can pay the fee without raising additional capital.
So this is essentially what we know and don’t know heading into the weekend.
But there is another factor to consider – what we know that we don’t know. In other words, we know something may be missing to the story. Similar to the financial collapse of 2008, investors were aware of issues banks were facing but didn’t know the full story of what is really going on behind the scenes. As such, investors have learned their lesson and when a multinational bank is reportedly facing difficulties, there is more often than note another part of the story we don’t know.
But we do know we don’t know it. At least not year.