Deutsche Bank AG (USA) Has No More Safety Net (DB)

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DB stock - Deutsche Bank AG (USA) Has No More Safety Net (DB)

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You’ll have to go back more than two decades to find the last time shares of Deutsche Bank AG (USA) (NYSE:DB), Germany’s largest lender, traded this low. DB stock, which is down nearly 50% this year, is getting punished again Monday, down more 5% after Deutsche Bank fell to the bottom of Europe’s banking index.

DB Stock: Deutsche Bank Has No More Safety NetDeutsche Bank shareholders didn’t like the report by German magazine Focus that Chancellor Angela Merkel won’t provide Deutsche Bank, which has suffered eroding profit margins from negative interest rates, with any state aid.

Complicating matters, the bank, which has suffered amid a series of major regulatory fines, was banking on the Chancellor’s assistance. It would seem Merkel, whose policy will affect other major banks, had other ideas.

The sell-off in DB stock had plenty of company, as it affected other European banks, sending the Euro Stoxx bank index down 1.92%. Among other banks impacted are Barclays PLC (ADR) (NYSE:BCS) and Banco Santander, S.A. (NYSE:SAN), which have fallen roughly 2%.

Although Monday’s news sent shockwaves to long investors of DB stock, not everyone is upset. The Financial Times reported that several large hedge funds, including London-based fund Marshall Wace and U.S.-based firms Highfields Capital Management and Discovery, had placed massive bets that DB stock would fall.

Citing filings with the Securities and Exchange Commission, the Financial Times noted that Marshall Wace has established the largest single short position against Deutsche Bank and DB stock, amounting to almost 1% of its float. Meanwhile, Highfields had a short position on DB stock of about 0.74%.

Although Discovery had the lightest short position on DB stock of around 0.61%, the firm is likely celebrating.

What’s Next for Deutsche Bank and DB Stock?

That’s the major question on investors’ minds — both long and short. Obviously, the bearish bets are now paying off and the bears are now in control of DB stock. Given that the shares are down at two-decade lows, finding the bottom becomes critical. And the bottom may not be reached until Deutsche Bank displays it can restructure the business profitably.

But can Deutsche Bank regain its footing in a negative interest rate environment with no lifeline from Germany’s central bank? And with cash flow under pressure from its the recent $14 billion proposed settlement with the U.S. Department of Justice over allegations of mis-selling mortgage securities, Deutsche Bank may yet be the world’s riskiest globally significant lender, making DB stock untouchable beyond a short.

As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/09/db-stock-deutsche-bank-no-safety/.

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