Friday, September 30, 2016

Q&A: Will Deutsche Bank become the next Lehman?

Germany Deutsche Bank

FRANKFURT, Germany (AP) — Germany's biggest bank is looking shaky and some investors fear it could collapse and endanger the wider financial system.
Some even wonder whether it might become the next Lehman Brothers, the U.S. bank whose failure unleashed the worst of the global financial crisis in 2008.
Experts warn against drawing such quick conclusions. Deutsche Bank's shares are down 51 percent so far this year and it's negotiating a multibillion fine in the U.S. that it could have trouble paying.
But it's exactly because it is so big and important that it is unlikely to be allowed to simply fail, the way U.S. authorities did with Lehman.
Here are some questions and answers about the bank and what it might mean for the rest of the world.
The recent turmoil was triggered by a demand by U.S. authorities that Deutsche Bank pay $14 billion to settle an investigation in mortgage-backed securities, the investments that turned out to be duds and helped trigger the global financial crisis. That sum is about the same as Deutsche Bank's entire market value as of Friday.
It's unlikely the bank would pay the full amount — industry peer Goldman Sachs paid $5 billion in a similar investigation. But the fact that it could get hit with a big bill increased the possibility that it may have to tap investors to raise the cash. That would dilute shareholders' stakes and send shares down even farther.
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