You need only go back a little less than two years for an example. In later 2016, Deutsche Bank was a huge problem everyone was discussing if only because they couldn’t avoid it. Despite “reflation†then gripping much of the world, the German institution stood out for all the wrong reasons.
Those were easily dismissed as nothing other than an impending fine for housing bubble era wrongdoing. The US Department of Justice was going to slam the bank with an enormous penalty and its potential size was supposedly the reason investors were getting nervous. Rumors were swirling that it could be more than $10 billion, perhaps $14 or $15 billion. At that level the bank’s capital stance would be severely threatened (and might trigger coco’s and such).
In January 2017, Deutsche settled for $7.2 billion. It would pay $3.1 billion in civil penalties (under FIRREA) while also covering $4.1 billion in “relief†to various affected parties (such as homeowners). A serious forfeit, but nowhere near as much as had been feared.
After falling below $13 per share (on the NYSE) in September 2016, DB’s stock rose as prospects for a reduced settlement gained in perception. By the time it was announced, the stock had recovered to more than $20. End of story?
Not quite. As I wrote in September 2016:
While attention is rightly focused on Deutsche Bank it is only so because the bank is the most visible symptom being the most vulnerable participant in this “something.†DB is just an outbreak so prominent that the mainstream can no longer pretend there is nothing worth reporting – but they can still obscure why that might be, focusing on the canard about the DOJ settlement. This is a systemic issue, one that is as plain as Deutsche’s stock price.
That’s ultimately what’s important to understand here. The DOJ issue was as residual seasonality, 2a7 money market reform, and everything else. Media attention starts from the premise that everything is good and great, and never deviates from it. Therefore, whenever something comes along that challenges the narrative there is an intense, often desperate search to explain it as something other than it is.
