Based out of Frankfurt, the Deutsche Bank is one of Germany’s major financial institutions. The bank has many ties around Europe but it also has connections to the Americas and even the Asian Pacific. From governments to individuals, Deutsche Bank specializes in bringing banking services to these people.
Besides being dedicated to innovation and customer service, Deutsche Bank has a list of values that it uses to guide its business. Integrity, client sincerity, innovation, discipline, and partnership can all be found on the list of values that Deutsche Bank subscribes to. Why then is Deutsche Bank going under?
Deutsche Bank was tested by The United States Federal Reserve. Deutsche Bank was only one of 33 institutions being tested. The US Fed found that Deutsche Bank failed all parts of the stress test. This was due to poor risk management and poor risk assessment.
The US Fed wasn’t the only one to release bad news for Deutsche Bank, The Wall Street Journal also heralded bad news for the bank. According to The Wall Street Journal the International Monetary Fund’s weakest link when it came to risks was the Deutsche Bank. When you consider that the IMF is made up of banks from around the world, this news is devastating for the bank.
Investors and those who used Deutsche Bank took this news as expected. Investors started to sell and those who used the bank began to pull out. As a result of both the selling and pulling out, the shares lowered to the lowest that they have been in 30 years. Shares dropped to around 12.37 euros per share. This is extremely bad news for anyone that didn’t pull out.
It was also discovered that Deutsche Bank had been hiding losses. Over 10 billion Euros worth of losses had been recorded. Later on, in 2013 the bank stated it needed extra capital. A year later when it gained more capital it began selling shares and showing indicators of having further financial distress, such as those shares being at a 30 percent discount.
It is even worse news for the world. When a major player in the financial world take a fall many of the people who have relied on it also take a fall. Many people around the world have their money tied up in the Deutsche Bank and its collapse would result in those people losing their money.
With the interconnectivity of the modern world Deutsche Bank is connected to many of the other banks in Germany. They have a tie with almost all other institutions around. Their collapse would also make the others more unstable. And if they were able to hide billions of dollars in losses, what could the other banks be hiding?
It would also result in a domino effect of financial instability. The German financial market is one of the largest in Europe. If it falls, so will all of the smaller markets because they view the German market as a place for them to safe keep their money.
A good case example of this happening is Lehman Brothers. In 2008 when Lehman Brothers declared bankruptcy the financial world went into a downturn. This downturn affected the whole world economy, not just the localized economy.
The fact that the Deutsche Bank has been found in multiple scandals doesn’t help either. They were found manipulating LIBOR and the case involved about 29 of their staff members from offices around the world. They have also been fined over 200 million US dollars by the United States Banking Authorities.
Britain’s recent Brexit vote spells even more bad news for the bank. It is the largest European bank in the United Kingdom. Without that connection to the European Union being as strong as DB’s they will suffer from a loss of connection with the European financial market.
If Deutsche Bank doesn’t find a way to keep above market they will find themselves heralding the next financial disaster. With times already hard for many people, another financial disaster might spell severe consequences. The only other hope is that they can find a way to back out of the industry gracefully while leaving another institution in control.