“This Just Feels Like Death”: Analysts Flee Research Positions Amid MiFID II Changes

For the past couple of months, we’ve frequently shared our views that Europe’s MiFID II regulations, which force investment banks to charge for equity research instead of “giving it away” in return for trading commissions, could be a wake up call for 1,000’s of highly paid research analysts who were about to have their true ‘value add’ subjected to a market bidding test. Here are just a couple of examples:
Deutsche Bank Forced To Slash Fixed-Income Research Price By Half On Lackluster Demand New European Regulations Set To Crush Equity Research Budgets By $300 Million Macquarie Identifies The Winners And Losers Of MiFID II Sticker Shock: Small Hedge Funds Seen Ditching I-Banking Research Under MiFID Now, per a note from Reuters, it seems that a growing number of equity research analysts are finally waking up to the fact that hedge funds don’t really have a burning desire to drop $400,000 per year on reports drafted by a 23-year-old recent college grad that do little more than summarize free SEC filings. Who could have known?

This post was published at Zero Hedge on Nov 17, 2017.

Deutsche: The Swings In The Market Are About To Get Bigger And Bigger

Risk Parity not having a good day pic.twitter.com/GRdpB4NUOj
— zerohedge (@zerohedge) November 10, 2017

One week ago, on November 9 something snapped in the Nikkei, which in the span of just over an one hour (from 13:20 to 14:30) crashed more than 800 points (before closing almost unchanged) at the same time as it was revealed that foreigners had just bought a record amount of Japanese stocks the previous month.
As expected, numerous theories emerged shortly after the wild plunge, with explanation from the mundane, i.e., foreigners dumping as the upward momentum abruptly ended, to the “Greek”, as gamma and vega stops were hit by various vol-targeting (CTAs, systemic, variable annutities and risk parity) funds. One such explanation came from Deutsche Bank, which attributed the move to a volatility shock, as “heightened volatility appears to have triggered program trades to reduce risk”, and catalyzed by a rare swoon in both stocks and bonds, which led to a surge in Nikkei volatility…
… and forced highly leveraged risk parity funds and their peers to quickly delever. As DB’s Masao Muraki explained at the time:

This post was published at Zero Hedge on Nov 16, 2017.

BANK ADMITS FIAT CURRENCIES ARE FAILING AND CRYPTOCURRENCIES MAY REPLACE THEM

As the transition towards a blockchain based economy continues, the established financial powers are desperately trying to stay relevant. In an attempt to boost their credibility, analysts at Deutsche Bank are finally admitting that state-run fiat currencies are becoming obsolete. For years, blockchain entrepreneurs and other critics of central banking have been branded either conspiracy theorists or criminals. But recently, those controversial opinions about the inevitable changes coming to the world’s financial system are being echoed by mainstream pundits.
Deutsche Bank’s top strategist, Jim Reid, recently articulated a view on the economy that is shared by many but rarely talked about:
‘Central banks and governments which have ‘dined out’ on the 35 year secular, structural decline in inflation are not able to prevent it rising as raising interest rates to suitable levels would risk serious economic contraction given the huge debt burden economies face. As such they are forced to prioritise low interest rates and nominal growth over inflation control which could herald in the beginning of the end of the global fiat currency system that begun with the abandonment of Bretton Woods back in 1971.’

This post was published at The Daily Sheeple on NOVEMBER 15, 2017.

Activists, Including Cerberus, Take 6.9% Stake In Deutsche Bank

The Deutsche Bank story has evolved rapidly this morning: Bloomberg reports that Deutsche Bank had attracted a ‘new top investor’ in the ongoing process of its endless restructuring, then Handelsblatt tweeted that Morgan Stanley acquired a 6.68% shareholding on behalf of activist investors.
The bank confirmed shortly thereafter that the new DB shareholder was Cerberus Capital Management, the New York-based private investment form with $40Bn AUM. Cerberus CEO, Steve Feinberg, owns 3% according to the report, although it’s not clear which parties own the other 3.86% acquired by Morgan Stanley at this stage.
Cerberus specializes in distressed investing which, obviously, is a perfect description of Deutsche Bank’s current circumstances. It was set up in 1992 by Feinberg and William L. Richter, currently senior managing director. Feinberg started his career as a trader at Drexel in 1982 and was described as ‘secretive’ by the New York Times. He famously said to Cerberus shareholders.

This post was published at Zero Hedge on Nov 15, 2017.

Draghi Knew About Hiding Losses by Italian Banks

The Bank of Italy, when it was headed at the time by Mario Draghi, knew Banca Monte dei Paschi di Siena SpA hid the loss of almost half a billion dollars using derivatives two years before prosecutors were alerted to the complex transactions, according to documents revealed in a Milan court.
Mario Draghi, now president of the European Central Bank, was fully aware of how derivatives were being used to hide losses. Goldman Sachs did that for Greece, which blew up in 2010. It is now showing that Draghi was aware of the problems stemming from a 2008 trade entered into with Deutsche Bank AG which was the mirror image of an earlier deal Monte Paschi had with the same bank. The Italian bank was losing about 370 million euros on the earlier transaction, internally they called ‘Santorini’ named after the island that blew up in a volcano. The new trade posted a gain of roughly the same amount and allowed losses to be spread out over a longer period. We use to call these tax straddles.

This post was published at Armstrong Economics on Nov 13, 2017.

Deutsche Bank CEO Says AI Will Help Him Cut Tens Of Thousands Of Jobs

While many in the financial services industry are dreading the day that AI technology becomes advanced enough to render broad swaths of the human workforce obsolete, Deutsche Bank’s John Cryan ironically sees the technology as something that might help him save his job.
The leader of the biggest German lender has been tasked with putting the bank back on sound footing, regaining market share and – of course – reining in costs, including the bank’s bloated headcount. DB has 97,000 employees worldwide, about double the number of employees at many of its European peers.
***
And as the bank has made about half of the 9,000 cuts promised by Cryan in a five-year restructuring plan, the CEO told the Financial Timesthat machine learning and automation technology could help him cut tens of thousands of additional jobs, particularly in the bank’s back office.
Deutsche has made about 4,000 of the 9,000 job cuts promised under a five-year restructuring plan announced in late 2015. Mr Cryan said many of the additional cuts would come through using technology to boost efficiency in the bank’s processes.
‘There we’ve got the most to gain,’ he said. ‘We’re too manual, which can make you error-prone and it makes you inefficient. There’s a lot of machine learning and mechanisation that we can do.”
Mr Cryan said the ratio of front office, revenue-generating staff, to back office people who keep the bank’s systems running, was ‘out of kilter’ at Deutsche.

This post was published at Zero Hedge on Nov 9, 2017.

One Year Later: These Are The Best And Worst Performing Assets Under President Trump

“A Happy Trumpiversary to all our readers this morning”
– Deutsche Bank
Today marks exactly 12 months since the US election on November 8th 2016, and as Deutsche Bank writes in “A Happy 12 Month Trumpiversary For Markets?” a lot has happened in the last year, although most surprising may be that for all calls of market collapse should Trump get elected, the S&P 500 has actually soared over 20% in the past 365 days according to Goldman which recently calculated that the Trump rally so far ranks as the fourth-best 12-month gain following a presidential election since 1936, trailing only Bill Clinton (1996, 32%), John F. Kennedy (1960, 29%), and George H. W. Bush (1988, 23%).
As Deutsche Bank then picks up, “needless to say that the victory was unprecedented and also a massive shock around the world. Following Trump’s victory, it was widely expected that we’d see a much higher chance of fiscal spending but also a reinforcement of the backlash against globalisation and associated forces of which migration policy and trade were probably first and foremost. In reality what we have seen in the last twelve months is plenty of evidence of backlash against globalisation, hostility and controversy, but very little in the way of fiscal policy.”
Here is the rest of Jim Reid’s observations on how the market has progressed so far under president Trump.

This post was published at Zero Hedge on Nov 8, 2017.

What Risk: Deutsche Bank Ramps Up Loans Business In Desperate Scramble For Profit

We have some sympathy for John Cryan, but only to the extent that he has the near impossible task of putting the biggest German bank back on a sound footing regaining market share and generating some elusive revenue growth: a virtually impossible task as long as Europe is choked by NIRP. As we noted two weeks ago, Deutsche’s 3Q 2017 results confirmed that the situation is still getting worse:
Deutsche Bank’s Q3 2017 revenues were 6.78 billion, below market expectations of 6.88 billion. The share price fell 2.7% shortly after the European market open. The problem – like the previous quarter – was a bigger-than-expected drop in trading revenues. Trading revenue was down 30% year-on-year to 1.512 billion versus 2.162 billion in Q2 2017. The challenge for the embattled CEO, John Cryan, is that the trend is still deteriorating. Trading revenues in Q2 2017 fell 18% year-on-year to 1.666 billion euros versus 2.027 billion euros. Earlier this year, Cryan pledged to turnaround the performance of the investment bank as soon as this year. At the time, we wondered if Cryan’s time wasn’t running out: “The countdown to Cryan’s replacement is ticking ever louder.”
So if you were Deutsche CEO Cryan and you needed revenue growth and you needed it fast, what would you do? One thing is to identify a ‘hot’ sector in capital markets with high margins and go all out for growth, never mind the risk. Which is exactly what Deutsche Bank is doing in the leveraged loan market as Bloomberg implies.
While investors are attracted to the high yields from leveraged loans, investment banks are lured by the fees. ‘Leveraged finance is juicy, juicy stuff,’ said Tim Hall, global head of debt capital markets at Credit Agricole SA until last year. ‘In corporate banking, it probably hast the best margins.’ Yet the fees are lucrative for a reason: banks take the risk that investor appetite for leveraged loans may suddenly disappear before they can sell on the debts. Deutsche Bank lost about 2.5 billion euros on ‘leveraged loans and loan commitments’ in 2007 and 2008 combined, annual reports show. ‘Anyone getting into this sector today should have a good understanding of where we’re at in the cycle of leveraged loans,’ said Knutson. ‘Are we closer to midnight in terms of the exhaustion of it or are we halfway through?’

This post was published at Zero Hedge on Nov 8, 2017.

Deutsche Bank Enters the Economic Fringe, Considers ‘End of Fiat Money’

Fiat currencies have had nearly a 46 year run of success. But with cryptocurrencies ‘all the rage,’ what Deutsche Bank Strategists Jim Reid and Craig Nicol call ‘inherently unstable’ fiat currency system without any commodity backing might be coming to an end, they assert.
The end of a demographic trend will usher in another inflationary period, Deutsche Bank asserts The idea of tying the supply of money to a commodity such as gold was that it kept government spending in check because money was in limited supply.
The US abandoned the gold standard in 1971, anchoring the currency’s value, not to a commodity but rather the faith in a government. This was followed by a sharp rise in inflation resulting in mortgage rates rising to near 20% annually by 1981. The resulting debasement of currency value and loss of buying power might have ended the fiat monetary system if it were not for the deflationary period that came along in the 1980s.
This gentle deflationary trend is about to come to an end, Reid and Nicol think.

This post was published at FinancialSense on 11/06/2017.

“The S&P Is Up 21% Since Trump’s Election” And Other Market Anniversary Observations

November 8 will mark the one year anniversary of one of the biggest political shocks in US history: the election of Donald Trump. Since that improbable victory, which so many experts had said would lead to a market crash, the S&P 500 has soared by 21% according to Goldman which calculates that the Trump rally so far ranks as the fourth-best 12-month gain following a presidential election since 1936, trailing only Bill Clinton (1996, 32%), John F. Kennedy (1960, 29%), and George H. W. Bush (1988, 23%).
***
Of all sectors, the biggest beneficiaries from Trump’s election were Financials and Information Technology, which have powered the market with returns of 37% and 39%, respectively. Given its large weighting, Tech contributed 37% of the index gain. Alongside the relentless stretch of all time highs in the S&P, the rise in the index has also been characterized by the lowest volatility in 50 years and has seen just one month in which it did not record a gain (March, -0.04%) although on a total return basis, the S&P has been up every single month since the election, and as Deutsche Bank observed last wek, the S&P has seen a positive total return for all 10 months so far this year, the first time on record. Additionally, October marked the 12th positive month in succession, which equals the record set in 1949-1950 and 1935-1936. This means the S&P has not had a single month of negative total returns since Trump was elected almost exactly one year ago.

This post was published at Zero Hedge on Nov 4, 2017.

“Both Cannot Be Right” – The Yield Curve’s Ominous Message: Something Is Very Broken

Two weeks ago, Deutsche Bank’s credit analyst Aleksandar Kocic explained that with the yield curve becoming increasingly flatter, the Fed has roughly two more rate hikes left before it loses control as the curve first flattens completely and eventually inverts, a precursor to virtually every historical recession. As the DB strategist explained, given where long rates are the “Fed appears overly hawkish – it has only two more hikes to go and, for volatility and risk premia to reprice higher, the gap has to widen. As it appears unlikely that the Fed will be cutting rates any time soon, the gap could widen only if the Long rates sell off.”
The problem – as observed here virtually every day for the past year – is that long rates have refused to sell off, and while they did move modestly higher last week in the US, other developed nations have seen even more flattening to compensate for the move in the US.

This post was published at Zero Hedge on Oct 29, 2017.

“What Happens When The Market Can No Longer Pretend”: Charting Today’s Minsky Moment Dynamics

Back in July, Deutsche Bank’s derivative strategist Aleksandar Kocic believed he had found the moment the market broke, which he defined as a terminal dislocation between market and economic policy uncertainty: as he wrote 4 months ago, it was some time in 2012 that markets “lost their capacity to deal with uncertainty.’

It was also some time in 2012 that traders and market participants realized central banks have not only taken over the market, but have no intention of ever leaving as the alternative is a crash that wipes out 8 years of artificial “wealth effect” creation and puts the very concept of fractional reserve and central banking in jeopardy.

This post was published at Zero Hedge on Oct 28, 2017.

The $2 Trillion Hole: “In 2019, Central Bank Liquidity Finally Turns Negative”

In all the euphoria over yesterday’s “dovish taper” by the ECB, markets appear to have forgotten one thing: the great Central Bank liquidity tide, which generated over $2 trillion in central bank purchasing power in 2017 alone – and which as Bank of America said last month is the only reason why stocks are at record highs, is now on its way out.
This was a point first made by Deutsche Bank’s Alan Ruskin two weeks ago, who looked at the collapse in global vol, and concluded that “as we look at what could shake the panoply of low vol forces, it is the thaw in Central Bank policy as they retreat from emergency measures that is potentially most intriguing/worrying. We are likely to be nearing a low point for major market bond and equity vol, and if the catalyst is policy it will likely come from positive volatility QE ‘flow effect’ being more powerful than the vol depressant ‘stock effect’. To twist a phrase from another well know Chicago economist: Vol may not always and everywhere be a monetary phenomena – but this is the first place to look for economic catalysts over the coming year.”
He showed this great receding tide of liquidity in the following chart projecting central bank “flows” over the next two years, and which showed that “by the end of next year, the combined expansion of all the major Central Bank balance sheets will have collapsed from a 12 month growth rate of $2 trillion per annum to zero.”

This post was published at Zero Hedge on Oct 27, 2017.

Deutsche Bank Trading Revenue Plunges 30% As CEO’s Time Running Out

Deutsche Bank’s Q3 2017 revenues were 6.78 billion, below market expectations of 6.88 billion. The share price fell 2.7% shortly after the European market open. The problem – like the previous quarter – was a bigger-than-expected drop in trading revenues. Trading revenue was down 30% year-on-year to 1.512 billion versus 2.162 billion in Q2 2017.
The challenge for the embattled CEO, John Cryan, is that the trend is still deteriorating. Trading revenues in Q2 2017 fell 18% year-on-year to 1.666 billion euros versus 2.027 billion euros. Earlier this year, Cryan pledged to turnaround the performance of the investment bank as soon as this year. On a more positive note, earnings – which obviously possess a near-term degree of flexibility in the banking sector – beat expectations. This mirrored Q2 2017, as Cryan continued to apply a knife to the cost base (although end Q3 headcount rose ‘slightly’ versus end Q2 – probably compliance).
The countdown to Cryan’s replacement is ticking every louder: ‘These aren’t the kind of numbers you want to keep seeing,’ said Markus Riesselmann, an analyst at Independent Research in Frankfurt (who has a buy reco on the bank). ‘The longer this goes on, the harder it gets to believe management’s hopes for a recovery. We cannot see another two or three quarters like this.’
As Bloomberg reported, Deutsche Bank AG reported a bigger-than-expected drop in third-quarter trading revenue as Europe’s largest investment bank keeps losing ground to rivals. Trading declined 30 percent from a year earlier, Frankfurt-based Deutsche Bank said Thursday in a statement. That’s worse than the 15 percent average decline at the five biggest U. S. investment banks and the 24 percent drop expected by analysts. Net income more than doubled to 647 million euros ($766 million), beating the 278.6 million-euro average estimate of seven analysts, as the bank cut costs.

This post was published at Zero Hedge on Oct 26, 2017.

The EU Just Did the Big Banks a Massive Favor

The European Union’s executive arm, the European Commission, made a lot of bank executives very happy this Tuesday by abandoning its multi-year pledge to break-up too-big-to-fail lenders. Despite the huge risk they still pose to Europe’s rickety financial system, big European banks like Deutsche Bank, BNP Paribas, ING, and Santander can breathe a large sigh of relief this week in the knowledge that they will not have to split their retail units from their riskier investment banking arms.
Breaking up the banks would remove much of the risk from today’s government-backed banks, such as derivatives and other instruments that were heavily involved in the Financial Crisis. Without these hedge-fund and investment-banking activities, even large banks would be smaller, less interconnected, and could be allowed to fail without jeopardizing the entire global financial system.
According to the Commission, such a drastic measure is no longer necessary since the main rationale behind ring-fencing core banking services from investment banking divisions – i.e. to make Europe’s financial system less disaster prone – has ‘already been addressed by other regulatory measures in the banking sector.’ That’s right: Europe’s banking system is already safe, stable and secure. Bloomberg:

This post was published at Wolf Street on Oct 25, 2017.

The $2.5 Trillion Paradox: “While The Short End Is Optimistic, The Long End Has Never Been More Pessimistic”

Last weekend, as Deutsche Bank’s derivatives strategist Aleksandar Kocic was looking at the spread between the short and long end of the curve, and while contemplating the lack of market volatility, he concluded that “given where long rates are, Fed appears as overly hawkish – it has only two more hikes to go and, for volatility and risk premia to reprice higher, the gap has to widen. As is appears unlikely that the Fed will be cutting rates any time soon, the gap could widen only if the Long rates sell off.”
In practical terms – if only for bond traders – this meant that “for anything to happen, 5Y5Y sector has to move higher”, however the $2.5 trillion question is whether this sell off in long rates will be violent or controlled. Kocic concluded that “This is the catalyst for everything.”
In other words, those lamenting the pervasive complacency and the ubiquitous lack of volatility in the market, may not have much more to wait: after just two more rate hikes, absent a parallel move wider across the rest of the curve, the Fed’s “breathing space” will collapse, and Yellen, or rather her successor, will lost control of both vol markets and long-dated yields, as the Fed effectively hikes into a self-made recession, where it itself inverts the yield curve. That would be a problem.

This post was published at Zero Hedge on Oct 21, 2017.

History Says Global Debt Levels Will Lead to Another Crisis

It may feel like we’ll escape a debt crisis since, well, the world hasn’t ended in spite of runaway debt levels. Some of us hard money people feel like we’re taking crazy pills; how the heck can debt be so out of control, so completely unpayable, and yet the financial system keeps chugging along as if nothing’s wrong?
Well, history has a message for us: the current calm won’t last forever, because there is a direct link between government debt levels and the number of financial crises that occur. And since global debt levels are high – the second highest level in the past 150 years – it’s not exactly a stretch to conclude that another financial crisis is coming.
Analysts at Deutsche Bank recently released an extensive study that demonstrates the link between debt and crisis. One chart in particular screamed for attention.
They measured G-7 government debt levels, as a percent of GDP, and charted that figure against the number of crisis those countries have experienced. Here are the primary events they classified as a crisis or shock:
15% fall in stocks 10% decline in the country’s currency exchange rate 10% fall in bonds

This post was published at GoldSeek on Wednesday, 18 October 2017.

“This Is Most Worrying”: In One Year, Central Bank Liquidity Will Collapse From $2 Trillion To Zero

Is it complacency, or simply trader paralysis?
A question we first asked three months ago is getting a second wind this morning, when in a report by Deutsche Bank’s Alan Ruskin – “Vol: freeze or flight?” – the macro strategist points out that “the new 2017 Nobel laureate for Economics is not the only one at a loss to explain low stock market volatility, and thinks investors are in ‘freeze mode’ in the midst of global uncertainties.”
According to Ruskin, however, it’s all about to change.
But why? And what is “the most likely causes of a shift to ‘flight mode’ and a rise in volatility? Here’s one possibility: by the end of next year, the combined expansion of all the major Central Bank balance sheets will have collapsed from a 12 month growth rate of $2 trillion per annum to zero.”

This post was published at Zero Hedge on Oct 11, 2017.