Morning Coffee: This may be the end of Deutsche Bank as you know it. The archetypal upper-middle class banker
Deutsche Bank is not what it was. It's not just the 30 year low in the share price. It's not just the new market cap way (way) below organizations that would once have been considered its inferior. Nor is it Angela Merkel's suggestion that Deutsche is on its own and has no hope of being bailed out by the German government before the national election in September 2017. It is - as the Financial Times helpfully points out - that, unless Brexit is made very easy indeed, there's no way now that Deutsche will be able to separately capitalize investment banks based in London and Germany. The investment bank will have to move to Frankfurt; bye-bye London Wall.
Before Deutsche's London investment bankers prepare to lose their jobs or decamp to Bad Homburg, however, it's worth considering the extent to which Deutsche's travails threaten to become an economic and political rather than a purely financial issue. In a worst case scenario, the Telegraph argues that Deutsche could take down Angela Merkel and - or - the edifice of the European Union.
If confidence in Deutsche Bank evaporates and Merkel refuses to stand behind the bank, the Telegraph says all hell could be let loose. After all, the IMF says Deutsche is the key source of systemic risk in the global banking sector with J.P. Morgan, HSBC, BNP Paribas and others all heavily exposed to it. The ensuing economic chaos would be unlikely to ingratiate Merkel with the German electorate.
On the other hand, the Telegraph also suggests that if Merkel submits and agrees to a state bailout of Deutsche Bank, she risks reopening the running sore that is the Greek and Italian banking crisis: "For Germany to turn around and say, actually we are bailing out our own bank, while letting everyone else’s fail, looks, to put it mildly, just a little inconsistent," the Telegraph notes. Pressure for the EU to bailout Italian and Greek banks would be resurgent as a result.
In the circumstances, by far the most preferable course of events is one in which Deutsche has no urgent need to raise additional capital and investor confidence isn't tested. This will require the U.S. Justice Department to cut its $14bn Deutsche Bank fine to something more manageable - like, say, $4bn, as soon as possible. As of yesterday, this is starting to look like something with which Angela Merkel really, really needs the U.S. government to cooperate. In return, the U.S. administration might want to exact a few concessions - like a reduction in the €13bn fine recently slapped upon Apple by the EU, and maybe an agreement that Germany will exert pressure upon the European Union to make the UK's withdrawal as pleasant and peaceable as possible? All is up for grabs. It's not over yet.
Separately, if you were wondering what one of these black shoe-wearing upper middle class investment banking types looks like, you might want to read Financial News' portrait of Sebastian Grigg, the former Credit Suisse head of UK investment banking who's setting up his own boutique. Grigg was educated at Eton. He attended Oxford University, where he fraternized with David Cameron and was a member of the infamous Bullingdon Club. He ran to become a Conservative MP (and failed), and then joined Goldman Sachs and Credit Suisse. Grigg was known for being "impossibly well-connected," says Financial News. You don't get that growing up in a brown-shoe-family in the suburbs.
What's going on with Deutsche's notional derivatives exposure? (Mishtalk)
Commerzbank is planning to cut 9,000 of its 50,000 people. (Reuters)
Allianz Global Investors AG Chief Investment Officer Andreas Utermann, in an interview, said the German government will have to bail out Deutsche Bank if its financial situation gets bad enough. “It’s too important for the German economy.” (Bloomberg)
Perella Weinberg is merging with Houston-based bank Tudor Pickering Holt & Co. Maybe M&A boutiques aren't so hot after all? (Fox)
It's not just Goldman Sachs - Bank of America Merrill Lynch is cutting Asian investment banking jobs too. (Reuters)
HSBC's lyrical justification of banking careers: "I am a captain and I was put here to lead / In everything we do I make sure we succeed / When it comes to one-on-one I get the job done / I’ll find solutions to the problems everyone else is running from.” (Financial News)
Andrea Orcel: "The onus is on our industry to demonstrate that when structured and run properly, with appropriate regulation, banks can be socially essential – not just socially useful." (Financial News)
U.S. head of the CEO practice at search firm Spencer Stewart has cycled 72,576 miles on his recumbent bike desk while working. (WSJ)
Power posing is not a thing. (NY Mag)
Photo credit: Collapsed by Brad Smith is licensed under CC BY 2.0.