Deutsche Bank Seeks Credit Boost as New Debt Swaps Start Trading (DB Fighting To Stave Off Systemic Failure)

Reading endless stories about the China-US trade standoff are tiring. Moving on to more banking-related news …

(Bloomberg) — German banks may get some relief in credit markets as new insurance contracts start trading.

Deutsche Bank AG has the most to gain because stress in the credit-default swaps market has pressured borrowing and trading costs. Swaps covering senior-preferred debt will also align German contracts with those in France and Spain.

“This will lower the cost for counterparties hedging exposures to Deutsche Bank and more accurately reflect the position for counterparties and clients in the hierarchy of creditors,” James von Moltke, the lender’s chief financial officer said in a statement. “It also creates a level playing field for German banks versus their EU and U.S. peers.”

Swaps on Deutsche Bank’s safest securities, which are protected against losses, were quoted at about 95 basis points at 11 a.m. in London, according to CMA. That compares with about 180 basis points on senior non-preferred contracts. It’s unclear if any trades have taken place.


If we looks at Deutsche Bank’s 5Y Senior and Subordinated CDS, we see a dramatic divergence in the CDS spreads.


For comparison, here are the senior and subordinated CDS curves for US bank Bank of America. Both curves are considerably lower than DB’s curves.


Deutsche Bank’s equity has hovered around under $10 per share since December 2018.


Deutsche Bank’s CET1 (Common Equity Tier 1 (CET1) is a component of Tier 1 capital that consists mostly of common stock held by a bank or other financial institution. It is a capital measure that was introduced in 2014 as a precautionary means to protect the economy from a financial crisis. It is expected that all banks should meet the minimum required CET1 ratio of 4.50% by 2019) is solid at 15.70.


At least the non-performing assets on DB’s balance sheet are shrinking (but remain a headache).


Compare DB’s NPA to Bank of America’s NPA. BAC has managed to shrink their non-performing assets (aka, loans) to almost pre-financial crisis levels. DB is still considerably above their pre-crisis levels


Chris Whalen is correct. Deutsche Bank’s problems ARE Amercia’s problems as well. And you can see why Brexit is so important to German banks.

CoCo Puffs! CoCo Bonds Underperform in European Credit as Volatility Returns (Deutsche Banks Swoons To 7.81)

CoCo Bonds (aka, contingent collateral) bonds were once heralded as the safety net for banks. It was even proposed in a Congressional hearing for US mortgage giants Fannie Mae and Freddie Mac as the ultimate safety net. Unfortunately, CoCo bonds have proven  more risky for investors than previously thought.

(Bloomberg) — European CoCo bondholders are nursing losses of 1.8% this week, as surging volatility amid an intensifying U.S.-China trade war hurts the riskiest form of bank debt.

The losses outstrip declines of 0.2% for euro IG bonds this week and of 0.8% for euro HY bonds, based on Bloomberg Barclays indexes

YTD euro IG is still up 3.79% through May 9, the best performance since 2012, while HY’s 5.59% gain is also the best since 2012

CoCos have gained 8.95% in the best start to a year since 2015; the notes have benefited from the search for yield as dovish central banks compress returns in safer assets


For example, the Deutsche Bank 6% Perpetual (CoCo) bond is yielding 10.37% and priced at 89.30.


Of course, Deutsche Bank’s equity has plunged from over 120 to 7.78 today.


Even CoCo bonds can’t prevent the sinking of the once mighty Deutsche Bank.


US Core Inflation Falls To 1.55% YoY Ahead Of Fed FOMC Meeting (0% Probability Of A Rate Hike With A Downward Sloping Forward Curve)

Is the US slippin’ into darkness? It is, according to core inflation slipping to 1.55% YoY compared to The Fed’s target rate of 2.0%.


Declining core inflation translate to a flattening Treasury curve.


And a tanking volatility cube at the short-end.


The expectation for a rate hike on May 1st is … 0!


But the forward curve (orange line) for Fed funds rates is decidedly downward sloping.


Let’s see if Fed Chair Jerome Powell signals economic optimism for the US while the market is signaling slowdown.


Thanks to Jesse at Jesse’s Cafe Americain!

Escape TO New York! Foreign Capital Into US Multifamily Sector Has Grown By 241% To $50.1 Billion Since 2014

Declining economic prospects abroad and a growing US economy has led to foreign capital flowing into the US multifamily sector, especially from Canada, China and Singapore.


The solid footing of the US economy isn’t just benefiting domestic market players; it’s also spurring investments from abroad. Industry data show that the volume of foreign capital which was used to fund US CRE transactions surged year over year, including notable bumps for such property sectors as apartments. It appears that foreign investors are looking past the rising labor costs associated with apartment construction and buying into a sector which is in high demand.

An analysis by CBRE shows that investors from foreign countries accounted for $13.65 billion, or about 8%, of the $174.5 billion of apartment property sales that took place in the United States last year. While the 8% figure isn’t too large, the brokerage giant noted that foreign investors have pumped $50.1 billion into the US multifamily sector since 2014. Last year’s volume was nearly 50% greater than the previous year, when foreign investors accounted for $9.2 billion, or 6%, of the $154.2 billion of apartment property sales that took place.

CBRE found that foreign capital into the US multifamily sector has grown by 241% to $50.1 billion since 2014. During each of the 10 years prior to 2014, foreign capital amounted to no more than roughly $4 billion of the capital that found its way into the multifamily sector.

Canadian investors were the biggest foreign buyers of US apartment properties last year, accounting for $8.6 billion, or 63%, of all inbound foreign capital. However, that was equal to less than 5% of all deal volume in the sector.

Among the more active Canadian players in the sector is Starlight Investments, a Toronto investment manager that sponsors a number of funds that specifically target US apartment properties. It owns 38 properties with 12,000 units in 13 markets. It most recently paid $120 million for the 400-unit Broadstone Montane apartments in the Denver suburb of Parker, Colorado.


Foreign investment in industrial properties is booming too!

Yes, instead of Snake Pliskin ESCAPING from New York, foreign capital is escaping TO New York and other US metro areas.


A Tale Of Two Central Banks (Fed Vs ECB And Their Bank Stocks)

This is a tale of two Central Banks: The US Fed and the European Central Banks. And their respective commercial banks.

First, The Federal Reserve. US commercial banks recovered from the global financial crisis, although not completely.


But for the ECB, such is not the case for European banks.


Indeed, this a tale of two Central Banks.


US And China Credit Impulses Are Negative (Annual Change As % Of GDP), Along With The Eurozone

The bad news? The credit impulses (annual change as a percentage of GDP) for both the USA and China are negative.


The good news? The decline in China’s credit impulse is lessening.

If we throw the Eurozone into the Papusa, we see that the Eurozone has negative credit impuse growth, but is better than China or the USA.


Since 2005, China’s sovereign yield curve has actually increased will Japan’s has dropped into negative territory.



Global Supply Of Negative Yield Bonds Hits $10 TRILLION (Europe’s Sweet 16 Of Negative Yielding Sovereign Debt)

To listen to some talking heads, everything is beautiful.

But according to the bond market, everything is not beautiful. In fact, there is concern about global economic growth and financial fragility.

There is now $10 trillion in negative yielding bonds in the global economy.


And in Europe, there are 16 nations with negatiive 2-year sovereign yields, including Germany and France.


Notice that the short-end of the yield curves in Europe and Japan are negative.


People get ready for negative Central Bank rates in the USA!

Surprise! USA In Last Place In Citi’s Economic Surprise Derby, Eurozone In 2nd Place, Emerging Markets In 1st Place (All Three Are Negative, Even With Negative CB Rate In Europe And Japan)

The Citi Economic Surprise Indices measure data surprises relative to market expectations. A positive reading means that data releases have been stronger than expected and a negative reading means that data releases have been worse than expected.

Unfortunately for the USA, it has a negative economic surprise measure, followed closely by the Eurozone (also negative). The “leader” in the Economic Surprise Derby is … Emerging Markets. ALSO negative.


As a sign of meh economic growth, market implied policy rates are 2.38% for the USA, -0.40% for the Eurozone and -0.06% for Japan.


The expected Fed Funds target rates are trending downwards.


Eurozone expected target rates are negative.


Even Australia is downward trending. Like an overcooked shrimp on the barby.


True, the lofty expectations for the US economy are not being met.


Rollercoaster! Global Economic Growth (G10, US, Emerging) Sliding Down Together

The global economy is in a rollercoaster pattern.

And unfortunately the G10, US and Emerging nations are on the downward side.



This might explain Larry Kudlow’s call for a 50 bps drop in the Fed Funds Target Rate. At least Trump’s nominee for The Fed’s Board of Governors was previously the President of the Kansas City Federal Reserve. And CEO of Godfathers Pizza! Conditional on the US Senate approving his appointment, “Welcome to the party, pal!”