DB
- Thread starter Pekelo
- Start date
Dun worry, DB will be bailed out. The fuhrer took in millions of refugees, some of whom are openly their sworn enemy. They arrive and some predictably caused havoc. And they still want more. Do you honestly think the fuhrer will let DB, a systemically important banking institution for the entire Europe and the global economy, collapse without a bail out?
It will be bailed out no matter what happens. No backbone and no amount of pain is tolerable. Moral Hazard. Zero risk.
It will be bailed out no matter what happens. No backbone and no amount of pain is tolerable. Moral Hazard. Zero risk.
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I would take the other side of that bet if I could - going long DB and short XLF makes a ton of sense (I'll get back with the ratio in a few, probably something like 1.3-1.5).
Articles on Seekingalpha are pretty negative, Russian money laundering and such....
They have just raised money for the 4th time since 2010...
Think of it this way - DB going bust is a proper crisis, so there will be contagion to other financial firms. So DB down to zero will probably take XLF down 50-60%, while DB recovery will be neutral considering how much financials have rallied in the past few years. So risk/reward is for being long DB and short the basket. Also, it's a systemic risk firm and will get bailed out almost certainly.
The risk, obviously, is that nothing radical happening and the noise loses some cash. Also, a dilutive capital injection would also hurt this trade.
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DB will be bailed in if it comes to that. Germany can't afford to bail out all the PIIGS bad banks if they set that precedent.
Suddenly, I got an alert that some people liked my off-the cuff idea. So I did a quick post-mortem on it.
Two month later:
DB: (17.57 - 16.27 + 0.21)/16.27 = 9.28%
XLF: (23.84 - 23.46)/23.46 = 1.63% * 1.4 beta = 2.23%
Net profit of 7%.
PS. probably the nicest way would have been to buy a call on DB and finance it with a call on XLF, to make it a leveraged play with low downside in case DB tanks
Two month later:
DB: (17.57 - 16.27 + 0.21)/16.27 = 9.28%
XLF: (23.84 - 23.46)/23.46 = 1.63% * 1.4 beta = 2.23%
Net profit of 7%.
PS. probably the nicest way would have been to buy a call on DB and finance it with a call on XLF, to make it a leveraged play with low downside in case DB tanks