If Deutsche Bank goes down without a bailout, I really will eat my hat

‘Can anyone seriously imagine the German state and corporate establishment allowing the bank that bears their country’s name to go down?’ I asked in February, adding rather bravely, ‘Of course they won’t.’ And that, I fear, makes my next question, ‘Am I about to eat my hat?’ Shares in Deutsche Bank have plunged to their lowest level since 1992 as the US Department of Justice seeks to impose a $14 billion fine relating to Deutsche’s issuance of mortgage-backed securities before the 2008 crisis, and rumours say Chancellor Angela Merkel has ruled out a state bailout.

Deutsche boss John Cryan says the bank hasn’t asked for her help to fight its US battle and is in compliance with all its capital ratios, both of which may be true. The story highlights the way regulators and overseers make matters worse by spotlighting weakness for markets to amplify: the IMF in June called Deutsche ‘the most important net contributor to systemic risks’ in the global banking scene, while the DoJ cannot have been unaware that a fine almost as big as the bank’s current market capitalisation would cause that capitalisation to shrink even further and shake depositors’ confidence, with untold potential repercussions across Europe and beyond.