The Morning Porridge - Cheeky buyer of Deutsche?
Blain’s Morning Porridge September 28th 2016
“Dodgy? Yes, but he can claim a unique 100% record…”
Deutsche Bank. It’s all about Deutsche Bank – at least that’s how it feels. And… maybe it’s time to be a cheeky buyer?
The wheezing German banking behemoth is hanging over markets as a threatening vector of uncertainty. Although there is no outright panic – it’s set people a’thinking. “Oh no, here we go again.” Calm. Relax. It’s never as bad as you think.. until it is.
Those with a predilection for financials are reassessing the risks across other European banks. If DB is a busted flush.. who else? I got 3 phonecalls yesterday asking: “Why is no French bank under particular pressure? That’s a very good question… to which I really can’t think of a good answer. They might just be better at keeping their noses clean..
Yesterday we saw NordLB pull a senior deal – that’s very unusual. Only once in my pre-brokerage career as a DCM FIG specialist did I ever pull a bank issue – and that was a small private placement that stalled on liquidity concerns rather than the market picture and pricing. There is nothing quite as embarrassing for a bank’s self-confidence as a failed issue. Shame. NordLB may have some shipping issues – which can be resolved – but it’s a very competent lender across other critical sectors.
On the other hand, one wag suggested the woes of the financial sector explain neatly why the ECB isn’t buying banks on its corporate bond buying extravaganza! Hah, perhaps they are not as stupid as we think!
Another client sent a great chart yesterday – highlighting a raft of other European banking names who have seen their stock prices collapse as conclusively as DB’s these past 8 years. What does that tell us? The whole sector is essentially unresolved.. but we’ve know that for years. I’ve attached the chart above.
And when everyone is losing faith in banks – does that mean it’s time to be looking for bargains? Its worth a moment’s thought. There are bargains out there – but the desk consensus is it’s probably too early to think about the distressed players. We simply don’t know how Deutsche might play out in terms of raising new capital, the scale of the potential US fines, the threat of a bail-in.
Hmm. I wonder…
It’s also unclear what happens to the struggling Italian names. If Merkel publically refuses to bail DB, then how can the Italians save their whole banking industry without triggering a massive European bust-up?
But, there are cheap illiquid super-senior bonds around that a worth a look-see. When the market stabilises these will recover strongly. Buy them now before the lift-off. I’ve a couple of choice morsels to take a gander over.
Going back to Deutsche Bank – perhaps we’re already past the worst?
Although the headlines look bad – like the statements about no state bailout, we also had Merkel hinting things may change, and there are rumours large Sov Wealth Funds are being courted to take a “strategic” stake. We also had the US Department of Justice hinting there are deals to be done, (and RBS making a fairly light settlement of its mortgage selling “short-comings”). If Deutsche can strike a deal with the American’s below, say, $6 bln, that will remove the immediate capital threat and see the stock soar in a relief rally.
It will probably be short lived.
Meanwhile, my stock-picking chum Steve Previs has been looking at the DB charts – he says “its completed a perfect 5-wave decline” and found a “temporary bottom”. Now that may be Elliot-wave mumbo jumbo to most of us, but its rare for my news-flow driven sense of upside, and his chart/rational view of price uptick, to coincide.
Steve says BUY, BUY, BUY DB shares now with a stop at yesterday’s 10.18 low. It’s a limited loss scenario and a short-term play till the next wave of doubt sweeps over the troubled institution, but the short-term potential upside is there. If you need help executing the trade – you know who to call.
I think I agree with him..
Meanwhile, on the Clinton-Trump theme.. I got a great email from a major West-Coast US market player and observer last night. His guys did a late night office vote after the debate. Most of the group were rooting for Hillary. Clearly she was better in command of the facts they said. But! My chum asked “do you think Clinton would have surprised most of the 100mm audience to the upside, exceeding expectations, or do you think Trump would have surprised most of the audience to the upside?
Think about that. It’s more subtle than the polls suggest. Despite being an overwhelming Hillary supporting audience, the bulk agreed Trump won the debate in terms of positively surprising the audience. That bodes ill for those who expect Clinton to build positively on the debate. She won short-term perhaps.. but Trump continues to build all important momentum – watch the polls in coming days.
While loads of my US readers call me naïve when I suggest the battle between two massively unpopular and normally unelectable candidates won’t actually matter that much, I remain wedded to the view a Trump victory won’t be nearly as bad as folk fear. However, I am getting a number of views telling me a Clinton win, and years of congressional gridlock, supreme court ructions and a failure to sort the regulatory and tax red-tape holding back America could be even worse.
Who knows..
Out of time..
Bill Blain
Head of Capital Markets / Alternative Assets