Deutsche Bank. A topic that’s been greatly debated in our offices here at Accendo Markets over the course of this week. Investors have had their eyes fixated on the German financial behemoth since the news of the US Department of Justice seeking a substantial $14bn fine as settlement for litigation regarding the mis-selling of mortgage-back securities.

The impact of the DoJ’s announcement has been felt throughout global financial sector this week as markets were rattled; the obvious fear of contagion for the banking sector being a prominent concern.

Just last night, reports emerged of hedge funds withdrawing positions from Deutsche due to mounting concerns over their level of comfort doing business with Europe’s largest investment bank. Their actions prompted a colossal sell–off for shares on US financial markets. At the closing bells across the pond, losses of around 1% a piece for the three major US markets were an ominous sign for trading over here in Europe. And rightly so.

In London this morning, UK banks were facing immediate losses of up to 5% while the situation seemed even bleaker in Germany. Falling to fresh 33-year lows, calls were renewed  for the German government to alleviate pressure put on Deutsche Bank through a potential intervention.

The political implications of a DBK rescue mustn’t be understated. Angela Merkel, having categorically ruled out any form of rescue plan for the German bank, has had to contend with conflicting reports just days later that the Bundestag was, in fact, working on a contingency plan should the bank be unable to return from the brink.

The motivation behind Merkel’s statement is obvious: in the run up to next year’s German Presidential election, the last thing her political image needs is seemingly acting at the behest of a financial institution, especially after this year’s disappointing parliamentary elections.

The German taxpayer (and in other European countries for that matter) seems to be repeating the same old things. “Banks never learn their lessons.” “Are we revisiting 2008?” “Is the recession cycle starting again?”

More importantly, on the 10^th anniversary of the collapse of Lehman Brothers, are we about to witness its European equivalent?

And yet, as the initial panic from investors and financial markets from this morning subsides and calm, level-headed decision making returns, is it time to admit that the Deutsche Bank saga may be blown out of proportion?

The bank has an enormous amount of liquidity reserves at over $215bn; its willingness to sell assets such as Abbey Life has contributed $1.2bn to the DoJ fine contingency pot; even comments from the DoJ themselves have hinted that a possible lowering of the $14bn fine through negotiation is possible – no bank has ever paid the first figure quoted by the DoJ to settle an outstanding case.

Besides, this isn’t the first time we’ve seen increased panic over global financial systems’ health come to the forefront of investor sentiment. Over the past two years we’ve seen similar panics in the Chinese banking system; even more recently at their Italian peers.

Back in London, the UK 100 is within touching distance of regaining year high numbers (so much for the Brexit panic) whilst in New York, Wall Street could imminently reach its highest level ever.

Perhaps it’s these facts that are worth remembering when the next piece of news surrounding Deutsche Bank incites panic. Instead of running recklessly to the next exit amidst flashbacks of the height of the 2008 financial crisis, we should maintain a position of cautious optimism that the worst is finally behind us and this is merely another blip on the radar.

Avin Nirula, Trader, 30th September

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