Aggressive 'risk-off' swing in early Tokyo, Deutsche Bank crisis weighs
The Japanese Yen is soaring across the board as woes over Deustche Bank continue to weigh on risk sentiment, witth the troubled bank's stock hammered to a fresh all time low (fell by 7% on Monday) amid reports that the German government is not willing to provide any bailout should it be needed.
The fact that the German government (comments were made by Chancellor Angela Merkel over the weekend) may have even mentioned a scenario in which Deutsche Bank may need financial assistance is, judging by market moves, a major ''risk-off' development. As such, and perhaps reminiscing of what happened to Lehman Brothers back in the onset of the GFC, fears are starting to arise that another 'too big to fail' bank may, at some point, bite the bullet.
As a reminder, the German bank's market cap currently stands aroun $16 billion, however, since it is facing a $14 billion litigation settlement demanded by the DOJ, markets are starting to price in prospects of a potential iliquid situation should the bank end up facing the full amont demanded. While it is unimaginable to think the Germman bank may go under, if only on the disastrous consequences that this may have for the domestic economy, until the German government doesn't provide any sort of reassurance on how to deal with the fuild situation, the 'risk-off' conditions may be here to stay.
As Telegraph's Matthew Lynn notes: "If Deutsche Bank went down, and the German Government didn’t step in with a rescue, that would be a huge blow to Europe’s largest economy – and the global financial system. No one really knows where the losses would end up, or what the knock-on impact would be."
Lynn adds: "It would almost certainly land a fatal blow to the Italian banking system, and the French and Spanish banks would be next. Even worse, the euro-zone economy, with France and Italy already back at zero growth, and still struggling with the impact of Brexit, is hardly in any shape to withstand a shock of that magnitude."