Deutsche Bank has said it would fight a $14 billion demand from the U.S. Department of Justice to settle claims it missold mortgage-backed securities, a shock bill that raises questions about the future of Germany's largest lender.
“The main reason is that the US government is deep in debt. They’ve got a gigantic deficit – they are desperate for money. They’ll try to get it anywhere they can. I can’t imagine that Deutsche Bank should be liable for $14 billion,” Rogers told RT.com.
The claim against Deutsche, which is likely to trigger several months of talks, far exceeds the bank's expectations that the DoJ would be looking for a figure of only up to 3 billion euros ($3.4 billion).
“Either Deutsche Bank goes bankrupt, which is going bring down the entire world financial system, or they are going to come up to some kind of compromise at a lower number. If Deutsche Bank does have to pay $14 billion – you should be very worried anyway, but especially if they have to pay $14 billion,” Rogers said.
The bank only scraped through European stress tests in July and has warned it may need deeper cost cuts to turn itself around after revenue fell sharply in the second quarter due to challenging markets and low interest rates.
Chief Executive Officer John Cryan, in charge since last year, is already firing thousands of workers, dumping unprofitable clients and exiting businesses, Bloomberg reported.
The prospect of bailing out Deutsche Bank is politically noxious for German Chancellor Angela Merkel, who’s deciding whether to seek a fourth term next year and has championed European Union rules aimed at keeping taxpayers off the hook in a crisis. Merkel’s spokesman has said the government sees “no grounds” for talk of state funding for the bank. Cryan, for his part, told the Bild newspaper that accepting government support is “out of the question for us.” That hasn’t quelled speculation. Lawmakers from Merkel’s governing coalition said they expect the government to step in if Deutsche Bank were at risk of collapse due to a capital shortfall.
So what if the bank should eventually fail?
“Then the EU would disintegrate, because Germany would no longer be able to support it, would not want to support it. A lot of other people would start bailing out; many banks in Europe have problems. And if Deutsche Bank has to fail – that is the end of it. In 1931, when one of the largest banks in Europe failed, it led to the Great Depression and eventually the WWII. Be worried!” Rogers warned.
Rogers isn't alone about being cautious when it comes to investing in the current turbulent global environment.
Investors should just get used to such volatility for the rest of the year, Newsmax Finance Insider Mohamed El-Erian warns.
Allianz's chief economic adviser told CNBC that traders need a "stomach for volatility."
"This year is going to be all about exploiting volatility on the way up and the way down," he said.
- Source, NewsMax