Lehman-Style “Lock-Up” May Freeze Deutsche Assets…

Poor management decisions at the bank level can lead to some scary decisions like frozen accounts. The spin Deutsche put on it makes it even scarier.

August 2, 2019

Deutsche Bank

James Simons heads up one of the world’s top-performing hedge funds (Ren-Tech).

This fund got to that esteemed position by making predictions so accurate it seemed a crystal ball was involved. For example, they recently yanked funds from banking giant Deutsche Bank far in advance of a dire announcement:

… the quant fund pulled its cash from Deutsche Bank as a result of soaring counterparty risk, just days before the full – and to many, devastating – extent of the German lender’s historic restructuring was disclosed…

This seems to have come in advance of a big move out of equity funds by the German banking giant, while transferring funds to a smaller French rival. Anxious clients are pulling out $1 billion per day in response, according to Bloomberg:

As part of its exit from equities, the German lender had agreed to transfer some 150 billion euros of balances linked to hedge funds to French rival BNP Paribas SA, but clients have been pulling about $1 billion of funds per day and going elsewhere as the firms iron out the details, people familiar with the matter have said.

According to SGT Report, these counterparty clients probably won’t be coming back to Deutsche Bank, no matter how it deals with this situation.

And it’s understandable, because these clients are “pulling their liquid exposure from DB on fears another Lehman-style lock up could freeze their funds indefinitely.”

Having your funds frozen because of poor management decisions at your bank is scary. But this may not even be the most alarming part. Perhaps more alarming is the “interesting” way Deutsche Bank is trying to diffuse the situation.

They are trying to “spin” the transfer of funds to their French rival in a positive way, to make it seem as if business will just continue as usual. In fact, according to an official statement, they frame it as a “continuity of service”:

In this context, Deutsche Bank has entered into a preliminary agreement with BNP Paribas to provide continuity of service to its prime finance and electronic equities clients, with a view to transferring technology and staff to BNP Paribas in due course.

But in order to continue service to their already anxious clients who are pulling billions in funds out of the bank in short order… those clients would have to keep doing business.

It sure seems like Deutsche’s clients have already made up their minds with their billion-dollar “bank run.” The clients that haven’t may risk never seeing their funds again.

And the end may already be in sight, both for the bank and its remaining clients…

ZeroHedge reported the German bank, as its clients have known it, is “no more.” Of course it will likely restructure, but as SGT Report identified, “many hedge funds are suddenly at risk of being gated” on exposure to the bank.

So this begs three questions. First, when one of the biggest banks in the world could potentially go “belly up,” how safe is the money at your bank?

And second, if some bad moves and “big money” clients pulling out their cash has put the largest European bank against the ropes… could your bank survive the same?

Finally, if a “Lehman-style” lock on your funds happened, are you prepared?

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