When Citigroup realized it was going to lose much more money in the fourth quarter than the market expected, it decided to leak the news to the press. Deutsche Bank is more grown-up about such things, releasing a "preliminary and unaudited" set of results showing a
gruesome €4.8 billion loss for the quarter.
Deutsche’s share price has fallen 10% as a result; the more worrying news, especially for Tim Geithner and the rest of the Obama economic team, is that Citigroup’s share price is down another 15%, at just $5 — that’s a fall of 26% from Friday’s closing level. Is there a clean causal relationship here, as my headline implies? One can never know for sure, but at the very least there’s a lot of bad news coming out in the banking industry right now.
In light of Deutsche’s results, Citigroup’s decision to severely scale back its prop-trading business makes more sense. Citi says that the group was using too much capital, which surely true, but one also suspects that the risks have begun to outpace the rewards: much of Deutsche’s quarterly loss came from the debt and equity prop desks.
I’ll be fascinated to see, when Deutsche releases full results, what proportion of this $6.3 billion loss is attributable to its US operations and assets. There has been no safe haven from the current financial meltdown, the US is still ground zero when it comes to the source of losses, probably because US borrowers, especially in the housing market, levered themselves up so much during the boom years. Of course, none of that will come as any consolation in Frankfurt.