Deutsche Bank Fail Watch and Other Market Stories This Week

In terms of behemoth banks posing systemic risks, Deutsche Bank (DB) is "uber alles."

DB stock has fallen nearly 46% year to date and 88% over the past 10 years. With $42 trillion in derivatives exposure, Deutsche Bank was recently singled out by the International Monetary Fund as the bank that "appears to be the most important net contributor to systemic risks."

Boasting assets of $2 trillion, Deutsche Bank is by far the largest financial institution in Germany, with the dominant investment banking operation in Europe. It's also deeply troubled, with mounting regulatory woes that are weighing on equity markets.

How worried should you be about a global contagion along the lines of 2008? Below, we pinpoint the key events to watch in the week ahead, with advice on how you should proceed as an investor.

The German government recently denied rumors that it was discussing a rescue package with Deutsche Bank, following a request from the U.S. government that DB pay $14 billion to settle claims related to subprime mortgage-backed securities.

Attempting to allay investor concerns, Deutsche Bank last week said it would strengthen its balance sheet by selling its Abbey Life insurance business for $1.2 billion. DB management also indicated that it would be able to achieve a smaller settlement with the U.S. Department of Justice.

Investors were reassured, for now. The news drove stocks higher on Friday, with bank shares in particular rebounding from the sharp decline the day before.

Among the biggest gainers in the banking sector on Friday were Deutsche Bank (+14%), Bank of America (BAC) (+3.23%), Citigroup (C) (+3.1%), and JPMorgan Chase (JPM) (+1.5%).

But the international banking system continues to look wobbly, as other European banks grapple with souring debt that could get out of hand and rock the euro zone. In particular, Italy's banks are shouldering a combined total of €360 billion in bad loans, of which €200 billion have been categorized as insolvent.

And it's not just European banks: the debt bubble in China is one of the biggest dangers facing the global economy today. By some estimates, China's toxic debt could exceed $5 trillion, a gargantuan sum that represents nearly half the country's annual gross domestic product.

Then there's Wells Fargo (WFC) , arguably the most vilified corporation in America right now. The bank has been under withering political scrutiny since news broke last month that it was being fined $185 million to settle allegations that thousands of employees covertly opened unauthorized accounts for customers.

CITIGROUP and WELLS FARGO are holdings in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. See how Cramer rates the stock here. Want to be alerted before Cramer buys or sells WFC or C? Learn more now.

Crucial clues to the banking sector's resilience will soon arrive in the form of third-quarter operating results. A big day is scheduled for Friday, Oct. 14, when Citigroup, JPMorgan Chase, Wells Fargo, PNC Financial Services Group (PNC) , First Horizon (FHN) and Commerce Bancshares (CBSH) release third-quarter earnings scorecards before the market opens. Bank of America (BAC) releases earnings on Monday, Oct. 17. Except for CBSH, every one of these banks is expected to report lower year-over-year earnings growth.

In the week immediately ahead, the docket is crammed with key economic reports:

Monday (Oct. 3): Motor Vehicle Sales, Gallup U.S. Consumer Spending, PMI Manufacturing, ISM Manufacturing Index, and Construction Spending. Wednesday: MBA Mortgage Applications, ADP Employment Report, International Trade, PMI Services Index, Factory Orders, ISM Non-Manufacturing Index, and EIA Petroleum Status Report. Thursday: Chain Store Sales, Jobless Claims, and the Bloomberg Consumer Comfort Index. Friday: Employment Situation, Baker-Hughes (BHI) rig count, and Consumer Credit.

As banks contend with weak earnings growth, low interest rates, and tightening regulation, should you avoid the sector altogether? Many investors seem to think so. Despite its rally on Friday, the benchmark iShares US Financials (IYF) is only up 3.13% year to date, compared to a YTD gain of 7.79% for the S&P 500 (SPY) . That makes financial services the weakest performing sector in the market this year.

Considering the overall sound health of the global economy, it's unlikely that this litany of bank problems will trigger another 2008 meltdown. Nonetheless, your best bet is to seek more promising growth opportunities outside of the beleaguered financial sector, until the dust settles over the Deutsche Bank mess.

Worried that we face another 2008 calamity? I've found seven companies you should own no matter what the economy is doing. Each one of these powerful yet overlooked companies barely notices when the market tumbles. And they'll skyrocket when it rebounds. You can pick up all seven for pennies on the dollar right now. To get the names of these "seven survivor stocks," click here.

John Persinos is an editorial manager and investment analyst at Investing Daily. At the time of publication, he owned stock in Wells Fargo.

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