Why Negative Interest Not the Solution
The European Central Banks' NIRP (Negative Interest Rate Policy) is making matters worse for Deutsche Bank, as the banks' profits are getting squeezed, thus making it difficult for it to repair its' balance sheet. Higher interest rates usually give banks more room to book profits on lending.
The bank is finding it difficult to sell its assets because of illiquid credit markets. The banks' management will also find it difficult to raise capital as the investment-banking industry is in a "structural decline," according to Berenbergs' Chappell.
Brexit Is Adding to the Woes
Deutsche Bank receives 19% of its revenues from the U.K. After the Brexit vote, the uncertainty regarding future relations of the U.K. with Europe has increased the risk for all of the banks. President Francois Hollande of France is eyeing the financial industry and is pitching for them to move to Paris from London.
Deutsche Bank is the biggest European bank in London. Moving operations, which are handled by 8,000 members of the staff, will not be an easy task for Deutsche Bank and will further weaken its balance sheet.
How Is the Stock Behaving?
The stock is in a downtrend and has broken below the panic lows of 2009.
The stock is quoting at a price to book ratio of 0.251, which indicates the pessimism of the markets towards the stock. The investors believe that the stock is not worth more than a quarter of its liquidation value.
A comparative study of the stock with Lehman gives a more accurate picture of the future price of Deutsche Bank, which is zero.
The German Newspaper Die Welt reported that the great George Soros had recently opened a short position of 0.51% of Deutsche Bank's outstanding shares. This equates to seven million shares, worth $7.5 billion, reports Investopedia.
So, What Should You Do?
The easy monetary policy of various central banks is the main reason for banks holding such massive leverage. The next financial crisis will cause the central banks' actions to be redundant and ineffective, as they may not be in a position to control this impending catastrophe. In such a situation, the world will revert to the only remaining resort left, and that is is gold.
My readers have benefited immensely during the mini-crash post-Brexit. Please continue to follow me so as you can protect yourself from the next big one, which will wipe out tens of trillions of dollars around the world.