Whenever a major financial institution feels the need to send correspondence to its employees, informing them their “bank is strong and its financial reserves are adequate,” investors should become alarmed. And when the same institution encourages employees to inform clients the bank is “absolutely rock-solid”, an investor’s BS meter should be blaring over 100 decibels (dB). Such was the case back on February 9, 2016, when co-CEO of Deutsche Bank (DB), John Cryan, sent those exact words to his employees. When we learned about this back on February 9th, our dB level about DB went off the charts. We’ve seen this before. Let’s take a look and see if Deutsche Bank is “rock solid.”
As you know, price is the final arbiter of value. Price is fact. When we study price, we are studying facts. When we study the stock price of Deutsche Bank, we should be able to draw a conclusion on whether or not this bank is “rock solid.”
Here’s the weekly chart dating back to 1997.
DB is down 87% since its all-time-high back in 2007 before the great financial crisis (GFC) engrained itself in the investor psyche. At all-time-lows, we would want to see some type of evidence from price that DB is “rock solid.” However, to the contrary, here is the daily chart.
Deutsche Bank (DB) has broken down from a triangle pattern, which implicates a continuation of its 9 year downtrend. This breakdown is problematic as it targets a stock price for DB in the single digits. In addition, it’s self-evident this price action contradicts the bank’s claims. If anything, its stock price appears to be tied to a solid rock thrown overboard. From a global perspective, we hope this is a false breakdown and DB quickly recovers the $20 level. Because if DB is going to single digits (or worse), we don’t see how the global economy can avoid the counterparty consequences of their €41 Trillion in derivatives.
In conclusion, we hope we’re wrong and that price moves back above $20, proving that Deutsche Bank is not yet in trouble. Otherwise, the consequences of further price decline of this company would mean the exact opposite of “rock solid” for their bank, and for global markets.
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Disclaimer: Nothing in this article should be construed as investment advice or a solicitation to buy or sell a security. You invest based on your own decisions.