Deutsche Bank isn’t doing well. This has been shown once again by disappointing figures for the second quarter. Germany’s mightiest bank is doing so badly that it’s high time to write something encouraging. For example, that the bank isn’t as dangerous as Lehman Brothers, the Wall Street bank whose collapse directly triggered the financial crisis.
The comparison may seem absurd, but for a while now pertinent U.S. financial blogs have been calculating what the catastrophic effects for the global financial system would be from acute financial distress at the Frankfurt institution. And in his latest letter to the 100,000 employees of Deutsche Bank, chief executive John Cryan endeavors to dispel all doubts about the bank’s financial strength.
Lehman failed because of a single, big bet on the U.S. real-estate market. Deutsche Bank, on the other hand, is so diversified it could not be shaken to its core by a shock on one or even several markets.
The predictors of an apocalypse at Deutsche Bank generally make two arguments to support their doom-and-gloom scenario: the enormous extent of derivatives on the bank’s balance sheets and its high credit leverage. And in fact, both operating figures are higher at Deutsche Bank than at its large U.S. competitor JP Morgan, for example.
But the differences from Lehman are greater than the similarities. Not only are the liquidity and capital buffers incommensurably larger at the Frankfurt institution. Lehman also failed because of a single, big bet on the U.S. real-estate market. Deutsche Bank, on the other hand, is so diversified that in spite of all its weaknesses it could not be shaken to its core by a shock on one or even several markets.
Even if progress in restructuring is slow in coming and it is still not clear whether the bank will manage on its own to meet the strict capital requirements of the regulators – the comparison with Lehman is a lame one.
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