Ten hedge funds have started to sell their shares in Deutsche Bank, sending the share price plunging 7% to new lows in the latest attack by speculators on a bank that, if it fails, could bring down the euro.
But excellent Deutsche Bank has built up a strong liquidiy reserve, meaning it can sit back and relax, as Zerohedge reports, until a rescue package is put together.
The share price of the Banca Monte dei Pascha di Sienna, after all, is almost zero and it is still functioning.
“In other words, all else equal, even in a worst case Prime Brokerage situation, one where all €71 billion in “other customer” funds flee, DB should still have about €152 billion of the €223 billion in liquidity reserve as of June 30, once again assuming there have been no other changes. Stated simply, if the hedge fund outflow accelerates and depletes all the liquidity at the Prime Brokerage division, DB would part with about a third (just over €70 billion) of its €220 billion liquidity reserve.
Some other observations: even if one assumes the full loss of PB balances, DB would still have a Liquidity coverage ratio (“LCR”) of 124%. The LCR is equivalent to HQLA/net stressed outflows over 30 day period. This ratio shows the banks’ ability to meet stressed funding conditions over a period of 1 month. For Deutsche bank, the LCR stood at 124% with the ratio composed of: