Is Deutsche Bank The Next Lehman?

Has the crash begun? The similarities between the current market environment and those seen in the 2008 economic crisis are scary to say the least. Investors are panicking and for good reason – signs that another Lehman-style crisis may be on the horizon.

Deutsche Bank is the one in question. This German banking powerhouse has had its liquidity called into question and is now on the fence, being attacked from all sides as article after article is released pointing to the dangers the bank now finds itself in.

As we reported yesterday, this uncertainty had a dramatic effect on the stock price of the bank, causing it to crash by 10%, dragging it down to levels not seen since the last economic crisis.

The immediate risk that has so many investors on edge is the fact that Deutsche Bank has €350 million in maturing Tier 1 coupons due in April, and even more in the future. The question of whether they will be able to repay this is what has investors so worried.

The attacks have been so fierce and so successful that Deutsche Bank has been forced to issue a press release defending their positions and the fact that they do have the liquidity to meet debt demands in 2016 and going forward in 2017:

Frankfurt am Main, 8 February 2016 – Today Deutsche Bank (XETRA: DBKGn .DE / NYSE: DB) published updated information related to its 2016 and 2017 payment capacity for Additional Tier 1 (AT1) coupons based on preliminary and unaudited figures. 

The 2016 payment capacity is estimated to be approximately EUR 1 billion, sufficient to pay AT1 coupons of approximately EUR 0.35 billion on 30 April 2016.

The estimated pro-forma 2017 payment capacity is approximately EUR 4.3 billion before impact from 2016 operating results. This is driven in part by an expected positive impact of approximately EUR 1.6 billion from the completion of the sale of 19.99% stake in Hua Xia Bank and further HGB 340e/g reserves of approximately EUR 1.9 billion available to offset future losses.

The final AT1 payment capacity will depend on 2016 operating results under German GAAP (HGB) and movements in other reserves.