In a statement, Deutsche Bank pointed out that it is financially stable: “Our trading clients are amongst the world’s most sophisticated investors. We are confident that the vast majority of them have a full understanding of our stable financial position, the current macro-economic environment, the litigation process in the U.S. and the progress we are making with our strategy”
As
Citigroup teetered in late-2008 and early-2009, Paulson’s Treasury stepped in with two cash injections to keep the financial contagion from spreading after Lehman Brothers failed on Sept. 15, 2008. The highly unpopular bailouts kept Citi afloat as fear spread about further implosions in the financial system.
However, the European corporate culture is different, particularly when it comes to banking. Bailouts are considered anathema, and German officials in recent days have signaled an unwillingness to step in.
“The Germans have to stop talking about this publicly unless they say, ‘Yep, we got ‘em, there is no issue here,’” Whalen said. “The concern is that the statements they did make were not helpful.”
The situation conjured dark images of the 2008 financial crisis — with the important caveat that the overall risks are nowhere near as great now as they were then.
“After being there I am literally sitting here with chills coming down my spine because we’re in a very similar dynamic,” Larry McDonald, head of global strategy at ACG Analytics, said on CNBC’s “Power Lunch.” “Deutsche Bank is not Lehman in terms of the overall global risk, but the political situation is almost identical.”
“The politicians in Germany aren’t in position right now to do anything ahead of the election,” he added. “The beast in the market, the serpent in the market, knows this, and the market will push and push and push until they break the politicians in Germany to come up with public funds.”
In the meantime, market angst builds.
Millennium Partners, Capula Investment Management and Rokos Capital Management are among the 10 hedge funds that have pulled cash and cut positions at Deutsche,
according to the Bloomberg report, which noted that most of the 200 firms that conduct derivatives clearing with Deutsche have not altered their positions. Rokos declined comment to CNBC and the other firms did not respond to requests.
Bloomberg cited a company statement in which the bank expressed confidence that most of its clients understand the path Deutsche is taking
toward resolving its issues. The bank is in the midst of negotiating a settlement with the U.S. Justice Department over mortgage-backed securities. Reports indicate a figure of $14 billion is on the table, which would hit Deutsche hard.
The bank has about about $16 billion in equity and some $160 billion in debt.
“The thing that people forget is the EU has very, very strict rules on the book. The whole thing is no state assistance,” Kroll’s Whalen said. “The Germans have let this situation with banks fester for years, and unfortunately the guys at Deutsche have waited to settle their outstanding issues. They’ve always been this way.”
—CNBC’s Wilfred Frost and Patrick Allen contributed to this report.