Thread: At $72.8 Trillion, The Bank With The Biggest Derivative Exposure In The World

At $72.8 Trillion, Presenting The Bank With The Biggest Derivative Exposure In The World (Hint: Not JPMorgan)

Submitted by Tyler Durden on 04/29/2013 14:04 -0400


Moments ago the market jeered the announcement of DB's 10% equity dilution, promptly followed by cheering its early earnings announcement which was a "beat" on the topline, despite some weakness in sales and trading and an increase in bad debt provisions (which at €354MM on total loans of €399.9 BN net of a tiny €4.863 BN in loan loss allowance will have to go higher. Much higher). Ironically both events are complete noise in the grand scheme of things. Because something far more interesting can be found on page 87 of the company's 2012 financial report.

The thing in question is the company's self-reported total gross notional derivative exposure.

And while the vast majority of readers may be left with the impression that JPMorgan's mindboggling $69.5 trillion in gross notional derivative exposure as of Q4 2012 may be the largest in the world, they would be surprised to learn that that is not the case. In fact, the bank with the single largest derivative exposure is not located in the US at all, but in the heart of Europe, and its name, as some may have guessed by now, is Deutsche Bank.

The amount in question? €55,605,039,000,000. Which, converted into USD at the current EURUSD exchange rate amounts to $72,842,601,090,000.... Or roughly $2 trillion more than JPMorgan's.




The good news for Deutsche Bank's accountants and shareholders, and for Germany's spinmasters, is that through the magic of netting, this number collapses into €776.7 billion in positive market value exposure (assets), and €756.4 billion in negative market value exposure (liabilities), both of which are the single largest asset and liability line item in the firm's €2 trillion balance sheet mind you, and subsequently collapses even further into a "tidy little package" number of just €20.3.

Of course, this works in theory, however in practice the theory falls apart the second there is discontinuity in the collateral chain as we have shown repeatedly in thh past, and not only does the €20.3 billion number promptly cease to represent anything real, but the netted derivative exposure even promptlier become the gross number, somewhere north of $70 trillion.

Which, of course, is the primary reason why Germany, theatrically kicking and screaming for the past four years, has done everything in its power, even "yielding" to the ECB, to make sure there is no domino-like collapse of European banks, which would most certainly precipitate just the kind of collateral chain breakage and net-to-gross conversion that is what causes Anshu Jain, and every other bank CEO, to wake up drenched in sweat every night.

Finally, just to keep it all in perspective, below is a chart showing Germany's GDP compared to Deutsche Bank's total derivative exposure. If nothing else, it should make clear, once and for all, just who is truly calling the Mutually Assured Destruction shots in Europe.



But don't worry, this €56 trillion in exposure, should everything go really, really bad is backed by the more than equitable €575.2 billion in deposits, or just 100 times less. Of course, a slighly more aggresive than normal bail-in may be required in case DB itself has to followin the footsteps of Cyprus...

http://www.zerohedge.com/news/2013-0...t-not-jpmorgan

Deutsche Bank To Sell Up To 90 Million Shares, Will Raise €2.8 Billion In New Capital

Submitted by Tyler Durden on 04/29/2013 12:13 -0400


And just like that, European banks are back in capital raising mode, starting with what is perceived by some as Europe's strongest bank (alternatively, the most undercapitalized): Deutsche Bank, which at least check had a Core Tier 1 cap ratio somewhere south of 2%.

• DEUTSCHE BANK TO SELL UP TO 90 MLN NEW SHARES TO RAISE EU2.8B
• NEW SHARES WILL HAVE DIVIDEND ENTITLEMENT FOR 2012
• DEUTSCHE BANK SAYS NO PUBLIC OFFERING PLANNED
• DEUTSCHE BANK SHRS WILL BE PLACED VIA ACCELERATED BOOKBUILD
• PLANS ADDITIONAL CAP MEASURES OF UP TO €2 BILLION IN THE NEXT YEAR
• POTENTIAL ISSUANCE OF ADDED SUB CAP INSTRUMENTS

Since this is about 10% of the company's total float, the stock is not happy.


Th
e question why DB announced this just ahead of its earnings release should certainly make one ask just how well capitalized Europe (where every bank purports to having a fortress Basel III balance sheet) truly is?

From the release:

The Management Board of Deutsche Bank AG (XETRA: DBKGn.DE / NYSE: DB) resolved today, with the approval of the Supervisory Board, to execute a capital increase, which is intended to raise gross proceeds of approximately EUR 2.8 billion. The purpose of the capital increase is to strengthen the equity capitalisation of the bank.

It is intended to issue up to 90 million new shares from authorised capital excluding pre-emptive rights. The new shares will have full dividend entitlement for the fiscal year 2012. They will be placed with institutional investors by way of an accelerated book build offering. There will be no public offering. Deutsche Bank AG is acting as sole bookrunner for the offering.

Additionally Deutsche Bank intends to strengthen its total capital structure via the potential issuance of additional subordinated capital instruments of up to EUR 2 billion over the next twelve months.

The securities of Deutsche Bank AG mentioned in this release have not been registered under the Securities Act of 1933, as amended ('Securities Act') and may not be offered, sold or delivered within the United States absent registration under the Securities Act or an exemption from registration requirements.

http://www.zerohedge.com/news/2013-0...on-new-capital