Deutsche Bank…It was just a barrage of rumor-mongering. The Deutsche Bank rumor was that it will default on the 2017 interest payment on her CoCo bonds (Contigent Convertible Bonds). That’s just hogwash. CoCo bonds are for capital safety — in case a bank’s capital ratio falls below minimum requirement, the bonds will automatically be converted into equity shares. DB’s core capital ratio is well over 11% and deemed more than adequate. Besides, the German authorities and ECB will not let DB fail, zero chance. Complete fiction!
This is part of a frenzy of rumor-mongering among those preoccupied with playing “the Big Short”, now that the financial world is rocky enough for the potential slaughter. There were series of short plays on European CoCo bonds recently in the market. I am sure other plays will follow. These guys (they are not small) still employ old tricks — by spitting enough, it will eventually drown a cow; by repeating the same lies enough times, the echo will bring down the Empire State Building.
The Big Shorts also tried to spread the rumor last week that China has US$ 5 trillion of nonperforming loans. Well, for anyone with any knowledge of China, the answer is :”so what?” Yes, there are ton-loads of nonperforming loans; but the majority owner of all the major banks in China is the State. All these IOUs are, in accounting terms, “eliminated in consolidation” as far as China’s central bank and government are concerned — it’s the left pocket owing the right pocket at the end of the day. It doesn’t mean they won’t try to collect on the debts; in fact, that’s part of the reform program. There is no play here. To print RMB is China’s business and nobody else’s. China’s corporate bond market is small compared to bank loans and a distressed scenario there will not be sufficient to affect the system as a whole.
Okay, so the Big Short boys try to convince the fish out there that China’s state finance is so bad that the RMB will nose-dive (in fact, that’s the other rumor, that the RMB will lose 40% of value). Nice position for speculation, heh? But when, heh? China’s central bankers are practising their Clint Eastwood impersonation. They are muttering to George Soros: “make my day, boy”.
I don’t think the Big Shorts out there are dumb enough to try to play against China’s stack of money chips. But attack they will — elsewhere.
It is sad that greed is so insatiable. George Soros, who is 86 marching onto 99, is still asphyxiated with sucking $$$$$ at the expense of the vulnerable. You can just see him grabbing the sickle from the Grim Reaper, now that he is so close to his own wintry “harvest”. Yeah, Georgie Boy, China will have a hard-landing, just as you predict; but grab onto your seat before your heart attack.