Yesterday’s market moves need to be examined.
The way the markets turned around on a dime after the Dow fell over 220 points on the news the Deutsche Bank was being squeezed due to liquidity concerns was the stuff that the Plunge Protection team dreams of.
While the percentage moves were small, the direction was abrupt and had all the earmarks of the NY Fed — through proxies — of coming in hard and fast.
In 18 minutes, beginning just before 2pm EDT the S&P 500 and the Dow erased almost half the losses.
But after 3pm EDT, the indices took another leg down. This occurs because allegedly the Plunge team cannot intervene in the last hour.
Not sure whether that’s true since there’s no official playbook on this group’s rules, but market mavens believe that to be the case.
As we are all aware, we can’t have a market crash thisclose to an election and still proclaim we are in the midst of an economic miracle.
Let’s see if investors have any appetite to hold on to their positions over the weekend.
As I wrote
earlier this week Deutsche Bank’s CEO John Cryan is taking a page out of ex-Lehman Bros. chief Dick Fuld’s playbook.
He should look to how Morgan Stanley’s CEO John Mack handled Wall Street’s attack on his firm back in 2008. Mack did slam the vultures on TV saying his firm was solid and that it had plenty of liquidity, just like Fuld.
But the difference was he went out and raised additional money to shore up the balance sheet without giving away the firm.
Cryan in a letter dated Friday, told staff speculators are spreading false rumors to “distorted perception” and “damage” the bank.
A leader does not deride mysterious market forces for trying to take down the bank, nor does he explain that the fire sale going on inside the bank will shore up the balance sheet.
No you need to get fresh cash into the bank to turn market sentiment around.
This way investors can “trust” you will be there on Monday morning.
Here is the letter below:
You will have seen speculation in the media that a few of our hedge fund clients have reduced some activities with us. That is causing unjustified concerns. We should consider this in the context of the bigger picture: Deutsche Bank overall has more than 20 million clients.
I understand if you feel concerned by the extensive coverage on this issue. Our bank has become subject to speculation. Ongoing rumours are causing significant swings in our stock price.
It is our task now to prevent distorted perception from further interrupting our daily business. Trust is the foundation of banking. Some forces in the markets are currently trying to damage this trust.
Deutsche Bank has strong fundamentals. Let me mention some of the most important facts at this point:
1. We fulfil all current capital requirements and our restructuring is well on track. We completed the disposal of the British insurer Abbey Life this week and the sale of our stake in the Chinese Hua Xia Bank will be finalised soon. This will further improve our capital ratio.
2. We have significantly decreased our market and credit risk in recent years. At no point in the last two decades has the balance sheet of Deutsche Bank been as stable as it is today.
3. Despite low interest rates and a difficult environment we posted a pre-tax profit of about 1 billion euros in the first half of 2016. Before extraordinary items like restructuring costs, we earned about 1.7 billion euros. This demonstrates the operating strength of Deutsche Bank.
4. In a situation like this, the most important factor is our liquidity reserves. Currently they still amount to more than 215 billion euros. This is an extremely comfortable buffer. This is clear proof of how conservatively we have planned. This is acknowledged by numerous banking analysts.
There is therefore no basis for this speculation. Nor can uncertainty about the outcome of our litigation cases in the US explain this pressure on our stock price, if we take the settlements of our peers as a benchmark.
You have all done a tremendous job over the past few days. You are the ones who are in constant contact with our clients and making it clear how Deutsche Bank is really doing. You are Deutsche Bank – that is impressively clear. All of us in the Management Board highly appreciate it.
You will hear back from me soon. Please keep working as you have been doing so far. We are and we remain a strong Deutsche Bank.