Deutsche Bank has been the poster child for how long a sick but ginormous bank can be allowed to limp along
Far too many institutions have failed or been forced into major retreat in trying to become a global capital markets player. The problem is that the minimum scale to be competitive is high and includes having equities and fixed income trading operations (including all of the back office, information and IT support) in major financial centers around the world. That means high fixed costs (yes, they are variabilized to some degree by having a large bonus component to compensation, but the nut is still large). If you are an aspirant, you have say 50% to 60% of the revenues of a Goldman….and have to have at least 80% of the infrastructure. So the wanna-bes often wind up taking on risk to try to boost their profits so they can bulk up faster. But we can see how that movie ended with Bear Stearns and Lehman, who both bet on risky real estate as the way to close the gap with industry leaders, or Eurobanks who placed big CDO and derivatives business bets on top of exposures to frothy residential real estate markets.
Deutsche started far too late down the path of trying to become an investment bank, and on top of that was extremely inept in how it went about it.
Read More at Naked Capitalism
Read the rest at Naked Capitalism