JANUARY 2017 / NO. 1
TAGS: DEUTSCHE BANK, DEBT, GREY SWANS, EUROPE, ECB, MARIO DRAGHI

Deutsche Bank and more debt

“We live in a VUCA world, of Volatility-Uncertainty-Complexity-Ambiguity, which drives our strategic intelligence practices. However, no one can get a grip on the global debt which now stands at US$ 152 trillion, excluding debts in the financial sector, according to the IMF”
“In addition, no one in the world is able to identify the size of the total debt in the financial sector. To give some perspective: Deutsche Bank alone has US$ 42 trillion in derivatives on its balance sheet”
We estimate the amount of debt in the financial world to exceed the amount of global debt of US$ 152 trillion (company, consumer and government debt) by far. In business one makes strategic and business plans as result of one’s scenario plans, strategic war-mapping efforts and Grey Swan analyses with the aim of getting to the future first. However, the levels of volatility and uncertainty in 2016-2018 are extremely high, and force us to try and create maximum agility in our companies. Europe will face two large Grey Swans: the first is financial, and the second political; they might, in addition, reinforce one another.

Financial crisis

The total debt of companies, consumers and governments in 2015 was some US$ 152 trillion and this represents 225% of the total world GDP. This percentage is increasing year-after-year. Compare this with Japan, which has a similar debt situation and already faces stagnation spanning some two decades. The situation of the banks in Portugal, France, Spain, Italy and Greece is still of considerable concern. In addition, we face the ‘ticking time-bomb’ of Deutsche Bank which is also in a very bad shape. At the end of October 2016, Moody’s stated:
“Since June 2008, the market value of Deutsche Bank’s assets dropped by 35% from US$ 2.3 trillion to its current level of US$ 1.5 trillion, significantly closer to its default point of US$ 1.4 trillion.” Historically, when the market value of a firm’s assets falls below the default point, it is highly-likely that the firm will be unable to sell assets or raise additional capital to pay its creditors. Europe will then again face the situation of banks which are ‘too big to fail’. In the fall 2017, the Central Bank of Italy saved two banks with support which totaled € 20.0 billion.
The situation in Greece is still unchanged, and Italy and France will face similar problems in the event that the ECB’s Mario Draghi has to stop Quantitative Easing, which will mean printing some € 80 billion in currency each month.

Political crisis

European citizens have no influence on what will happen when Europe faces a combined financial and political crisis. A crucial question will whether the euro will survive? Each of us will face high levels of volatility, uncertainty, complexity and ambiguity, in accordance with Peter Drucker’s statement below:
“There are companies that make things happen, companies that watch things happen, and companies that wondered what happened”
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