Deutsche Bank impact on other European banks

Deutsche Bank impact on other European banks is currently emerging across the region, according to the Raoul Pal, the founder of The Global macro Investor. Is the recession possible?

4 October, AtoZForex – Deutsche Bank’s $14 billion fine from the US Department of Justice (DOJ) should be the least worry for the German lender right now, as the uncertainty around the case has caused much more serious consequences, according to Raoul Pal, the founder of The Global macro Investor.

Deutsche Bank impact on other European banks

Mr. Pal has called the Deutsche Bank “the epicenter of a storm,” adding that the bank’s falling share price, its large derivative book, Europe’s negative rates and what he called faulty business model are all the factors for the current volatility in the market.

Raoul Pal also stated that the US Department of Justice’s fine is just a first sentence of a much more difficult story of the Deutsche Bank. Even though Mr. Pal does not believe the 11th biggest bank in the world will pay the whole $14 billion sum to the DOJ, he estimates the payment will be slightly higher than the market anticipates currently – between $6 billion and $8 billion.

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Raoul Pal believes that the situation around the Deutsche Bank is putting the Germany in a difficult stance, where the long-term consequences are also possible. He called the case a “political hot potato,” adding that Germany has set itself so that taxpayers are not funding bailouts. Therefore, the Deutsche Bank has some difficulties managing the case by its own.

Deutsche Bank is “too big to bail in”

Moreover, Raoul Pal explains that the Deutsche Bank is simply “too big to bail in” and this leaves German Chancellor Angela Merkel in a tough place ahead of the state’s 2017 election. However, as Europe is already headed towards a crisis, according to Mr. Pal, the Deutsche Bank’s case is not considered as a trigger for that.

As the world has focused its attention and efforts on solving the problem of the German lender, the bigger and broader issue has already spread out through the European banking sector, as Mr. Pal has stated. He added:

“It’s all from the same issues. Basically, a lot of the bad loans in Europe, whether it’s Italy, whether it’s Spain, didn’t go away. There’s the problem now of how banks fund themselves, and then there’s the problem of the yield curve.”

Raoul Pal has noticed that not only small Spanish banks like Banco Popular entering the recession but bigger banks like Santander are also experiencing problems. Deutsche Bank impact on other European banks is currently emerging across the region.

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