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Reply #37: Deutsche Bank Could Transfer Financial Contagion [View All]

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Demeter Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Nov-28-11 08:24 AM
Response to Reply #33
37. Deutsche Bank Could Transfer Financial Contagion
http://www.bloomberg.com/news/2011-11-21/johnson-deutsc...

Youve probably never heard of Taunus Corp., but according to the Federal Reserve, its the U.S.s eighth-largest bank holding company. Taunus, it turns out, is the North American subsidiary of Germanys Deutsche Bank AG (DBK), with assets of just over $380 billion.

Deutsche Bank holds a large amount of European government and bank debt; it also has considerable exposure to lingering real estate problems in the U.S. The bank, therefore, could become a conduit for risk between the two economies. But which way is Deutsche Bank more likely to transmit danger -- to or from the U.S.?

By any measure, Deutsche Bank is a giant. Its assets at the end of September totaled 2.28 trillion euros (according to the banks own website), or $3.08 trillion. In the latest ranking from The Banker, which uses 2010 data, Deutsche was the second- largest bank in the world by assets, behind only BNP Paribas SA. The German bank, however, is thinly capitalized. Its total equity at the end of the third quarter was only 51.9 billion euros, implying a leverage ratio (total assets divided by equity) of almost 44. This is up from the second quarter, when leverage was about 36 (assets were 1.849 trillion euros and capital was 51.678 euros.) Even by modern standards, this is very high leverage. JPMorgan Chase & Co. has a balance sheet about 20 percent smaller than Deutsche Banks, but more than twice as much Tier 1 capital, an important indicator of a banks financial strength. Bank of America Corp., whose weakness is a serious worry in the U.S. today, has twice Deutsches capital. (These comparisons use The Bankers ranking of the top 25 banks.)

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