Currently the fate of Deutsche Bank is the most discussed topic in the financial markets. The stock price is rumor-driven, the most recent of which were unsubstantiated rumors of a settlement with the Justice Department that drove the stock up 14% last Friday. As it turns out, the bank has not yet initiated face-to-face settlement discussions.
The gyrations of this stock are like the exaggerated “wobbles” of a spinning top right before it drops the floor (or table-top). Make no mistake, DB will collapse absent a bailout by the German Government – likely in collusion with the Fed, ECB and BoE – or a bail-in by creditors, including depositors.
The cost to buy credit protection on DB’s junior debt moved up to a new record high today. Certainly the OTC derivatives market is not convinced that DB CEO, John Cryan, is being forthright in his pleas to the market proclaiming that everything is under control. Judging from the timing of similar remarks make by Bernanke in reference to the mortgage market and by the CEO’s of Bear Stearns and Lehman, DB could be just a few months away from total collapse.
I wanted to share my comments on DB that I included in my weekly Short Seller’s Journal, released last night: