LONDON (Reuters) - Deutsche Bank, Germany’s biggest lender, is fast becoming the country’s - and the world’s - biggest financial headache, facing a potential $14 billion fine from U.S. authorities that threatens to hole it below the waterline.
Since taking over as chief executive in mid-2015, John Cryan has slashed thousands of jobs, pulled out of certain regions and markets, and sought to reduce Deutsche’s balance sheet. But he still presides over one of the world’s biggest banks.
But just how big is Deutsche on the global stage? And could its travails ultimately have the same devastating impact on world markets as the 2008 collapse of U.S. investment bank Lehman Brothers?
Deutsche is the 6th largest investment bank in the world, according to some measures, the largest derivatives clearing house in Europe, the world’s fourth largest currency trader, and has significant trading relationships with all of the world’s largest finance houses.
The Financial Stability Board, the G20 financial watchdog, places Deutsche among the top 10 most systemic important global banks, and according to the International Monetary Fund: “Deutsche Bank appears to the most important net contributor to systemic risks in the global banking system.”
IMF graphic of Deutsche's financial links with the world's biggest banks: tmsnrt.rs/2doHAKf
In short, Deutsche Bank is too big to fail.
“This could be like Lehman, in terms of its derivatives exposure, counterparty risk, interbank and money market exposure. The European economy isn’t in great shape and a banking crisis-fuelled recession would be bad news for everyone else. It could be colossal,” said John Thanassoulis, Professor of Financial Economics at Warwick Business School.
“The problem is Deutsche is one of the backstops for derivatives trades. It would be like a central pin going down, It also backstops much of the German economy,” he said.
Peter Hahn, a former bond operative on Wall Street and currently professor of banking at the London Institute of Banking & Finance, said that the impact on markets from Deutsche’s predicament will depend on how isolated this case is.
“If Deutsche is seen as a unique event then other banks will pick up the business. But watch out, it’s not so big a jump to ask whether other banks’ models are equally flawed - particularly the remaining Europeans,” Hahn said.
Below is a list of where Deutsche stands in key market and investment banking tables.
Deutsche is the world’s 6th largest investment bank, with revenues of $7.13 billion across its all capital markets and investment banking divisions during the first half of this year, according to financial data analytics firm Tricumen Ltd.
That compares to 5th spot a year earlier, when revenues totalled $9.55 billion. The 25 percent fall was the second biggest revenue decline among the top 13 global banks tracked by Tricumen.
Deutsche was the only one of these 13 banks not to increase revenues in any segment of its investment banking and sales and trading units, Tricumen said.
Deutsche is the world’s 2nd largest credit trading bank, according to data analytics firm Coalition, sandwiched between global leader Bank of America Merrill Lynch (BAC.N) and JP Morgan in 3rd spot.
Deutsche is the world’s 4th largest FX bank, according to this year’s Euromoney poll, seeing 7.9 percent of the average $5.1 trillion changing hands every day in the world’s largest financial market.
That marks a steep fall from last year, when it was ranked 2nd with a 14.5 pct share. Deutsche topped the leading industry poll every year from 2005 to 2013, claiming a near-22 percent market share in 2008.
Deutsche’s outstanding derivative positions stands at around 42 trillion euros, some 12 times the size of the German economy. That’s down, however, from 52 trillion euros a year ago.
In investment banking operations (excluding sales and trading), Deutsche is the 7th largest global bank, down from 6th last year, according to year-to-date figures compiled by Thomson Reuters. Revenues from these operations so far this year are $1.93 billion, down 32 percent from last year’s $2.84 billion.
Deutsche has slipped down the investment banking rankings across the three major global regions. It’s down to 6th in Europe, Middle East and Africa (EMEA) from 3rd, with revenues falling 34 percent to $576 million.
It has slipped to 9th from 7th in the Americas, with revenues down 30 percent to $1.15 billion, and has slumped to 18th place from 8th in Asia, with revenues down 35 percent to $204 million, Thomson Reuters data show.
World’s 7th largest bank in debt capital markets, according to year-to-date data from Thomson Reuters, unchanged from last year. But revenues are down to $803 million from $1.11 billion a year ago.
World’s 7th largest bank in equities capital markets, according to Thomson Reuters data, down from 6th place a year ago. Revenues are down 47 percent to $317 million from $593 million.
World’s 11th largest bank for M&A services, according to Thomson Reuters data, down from 8th last year. M&A revenues are down a third to $408 million from $599 million.
World’s 6th largest provider of loans, down from 3rd place a year ago, according to Thomson Reuters data. Revenues have fallen 43 percent to $398 million from $704 million.
Reporting by Jamie McGeever; editing by Giles Elgood