...................."Deutsche Bank’s profitability also appears to be especially sensitive to interest rate movements, which is a vulnerable position to be in given the recent rate cutfrom the Federal Reserve and other central banks. For example, Goldman Sachs reportedly has estimated that a rate cut of a fraction of a percentage point would eat away as much as 42% of Deutsche Bank’s 2019 estimated earnings.
Moreover, Deutsche Bank’s well-known intent to sell troubled assets weakens its negotiating position in the markets. It is likely to sell troubled or nonperforming assets at significant discounts, realizing equally significant losses over time.
In addition, Wall Street’s awareness that Deutsche Bank may be seeking to unwind a massive derivatives portfolio in its “bad bank” unit will increase those losses. Deutsche Bank has reportedly already set aside more than $1.6 billion to cover expected losses on that portfolio, which reflects a discount to compensate the few purchasers in the market for a portfolio of that size for the risks and high capital requirements associated with those derivatives.
Other illiquid, hard-to-price assets are likely to form a substantial part of the bad bank’s assets and positions. Those assets are not just hard to sell. They are hard to model, which means easy to manipulate for capital purposes. The ultimate market values may differ significantly."...............
