Deutsche Is In Trouble

| by Mark Jones
Deutsche Bank's office headquarters are located in Germany.Deutsche Bank's office headquarters are located in Germany.

Deutsche Bank is in trouble, and its health is becoming a global issue.

On Sept. 29, the German Bank became the subject of media attention after shares fell more than seven percent in New York trading, according to CNBC. The bank’s fall also caused market-wide drops.

Deutsche Bank faces a fine of up to $14 billion from the U.S. Department of Justice for misleading investors in regards to mortgage-backed securities in the years before the 2008 financial crisis, Reuters reports.

Deutsche Bank is fighting the fines, but if its fight is not successful, then the bank will need to turn to investors or the German government for a way out of crisis.

As the fines become more and more real, investors will have to make difficult decisions about the bank's fate.

Despite global fears about the future of Deutsche Bank, Barry Bausano, chairman of Deutsche's hedge fund business, remains hopeful.

The rise and fall of the company shares are “part of the typical ebbs and flows,” he told CNBC on Sept. 29.

In a statement, the bank claimed financial stability:

Our trading clients are amongst the world's most sophisticated investors. We are confident that the vast majority of them have a full understanding of our stable financial position, the current macro-economic environment, the litigation process in the U.S. and the progress we are making with our strategy.

Deutsche Bank needs to realize, however, that it's in serious trouble.

Investors do not have to continue to offer support, and it's unclear whether the German government will be able to rescue the company.

Earlier this year, the European Union established rules on how countries should handle possible implosions of large banks, but the policies have yet to be tested, The New York Times reports. If Germany needs to save citizens from incredible financial losses, then it would have to use these untested policies.

“They're going to probably have to say that they would be willing to put funds into the bank,” said Christopher Whalen, a banking analyst, according to CNBC.

“It's exactly like what [former Treasury Secretary Henry] Paulson did with Citi ... It's a very analogous situation. Hopefully, the German government will take a page from that particular book and look at how the U.S. responded,” Whalen added.

If Deutsche Bank responds differently, then the world could be looking at another financial crisis like that of 2008. 

Sources: Reuters, The New York Times, CNBC / Photo Credit: gravitat-OFF/Flickr

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