NuclearPhynance Archive

@Kitno



Thanks for the interesting points. I've bumped up my priors on a DB unwind.



Maybe the trade here is to sell short-dated DB vol and offset with the long-dated. Implied's are 10-15% higher for October than January. It seems like the adults in the room are in agreement that DB isn't collapsing next month. Demand for near-term protection seems mostly driven by dumb-money and prudence-signaling. If we're on the path to the end, we'll see spreads and vol widening before jump-to-default. Vega should outperform gamma until then. Of course, if it doesn't collapse, you just harvest a nice carry.

If there is some sort of a relief rally (soft bailout, improvement or whatever) and it rallies, you will get destroyed on both short gamma and long vega.

The fact DB's cds trade at those levels is irrelevant-- they get money at zero from corporates/retail. I would be really susprised if we see something on the primary market at those levels.

I think DB will kick the can down the road till next recession. From where I sit it's difficult to see what may trigger such a catasrophic loss of confidence in the current market.

[edited]

The Greek banks are still (just about) breathing, but DB is going to collapse in a heap a la Lehman. Seems like the way to bet...

[img]/User%20Files/25/Deutsche%20bank.jpg[/img]

I'm with Gill on this one. I don't see how CDS are relevant nowadays when there's no liquidity in this market anymore and banks get ECB funding at zero or so rate irrespective of spreads (including cash bond prices) anyways. So DB with ~$250bn liquidity is definitely not Lehman.



As to the gradual deterioration (over month/yrs) I'm not sure how that would play out. I mean DB business model is no different from other (former) "IBs". If this model turns out to be unsustainable then it will affect many other similar players. In any case it would probably be restructuring/industry shift (with a time scale of years) rather than bail(out/in)

I think Deutsche's business model is quite a bit more capital-intensive than others (so a lot more FICC than the others). This is just based on the stuff that I have seen.



I have a question, though... It seems that one of the big issues that is often mentioned in connection with DB is their lack of profitability. However, looking at the actual data, it appears that they reported reasonably positive revenues and EPS both for Q1 and Q2 2016. Has anyone who is wise in the ways of banks looked at those numbers in any detail?

Martinghoul, have a look at Return on Assets, i.e. Net Income (or Profit before Tax if you want to compare accross jurisdictions and avoid cheating there) divided by Balance Sheet volume. I remember figures (based on Net Income) between 0.2% and 0.5%. For reference, Wells Fargo delivers north of 1% (I think last time I checked they were at 1.3%). Look back a couple of years to get the full picture.



What this tells you is that Deutsche is not that profitable, but highly levered. Now take away the leverage (due to stricter regulations etc.) and see what remains...

Thanks, Cheng... I guess I was just under the impression that the expectations were much worse.