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Brexit Is a Lehman Moment for European Banks

201 points by vool 10y ago

coherentpony 10y ago
> now worth just 17 billion euros 'Worth' as defined by 'what someone is willing to pay'? Saying Snapchat is 'worth' 17 billion euros is completely and utter nonsense.
- nxzero 10y ago
  Please explain why taking into account sudo comparable sells/offers such as Slack, WhatsApp, etc. EDIT: As noted below in the comments, LinkedIn was bought for 26 Billion in cash by Microsoft.
  - cm3 10y ago
    The point is that there won't be an all-cash 17bn transaction for Snapchat. I'm unaware of a SV startup sale in that dimension which happened in mostly cash. Usually, and I may be missing some deals, it's part cash and mostly shares of the buyer.
    - nbclark 10y ago
      LinkedIn, while not really a startup, was an all cash purchase.
      - cm3 10y ago
        Interesting, do you have a source for that? All I recall is that LinkedIn is struggling and it's hard to understand why MS would pay 26bn (http://www.recode.net/2016/6/13/11920416/linkedin-acquisition-microsoft-reasons http://www.recode.net/2016/6/13/11920416/linkedin-acquisitio...).
        itsprofitbaron 10y ago
        "Microsoft Corp. (Nasdaq: MSFT) and LinkedIn Corporation (NYSE: LNKD) on Monday announced they have entered into a definitive agreement under which Microsoft will acquire LinkedIn for $196 per share in an all-cash transaction valued at $26.2 billion, inclusive of LinkedIn’s net cash" http://news.microsoft.com/2016/06/13/microsoft-to-acquire-linkedin/ http://news.microsoft.com/2016/06/13/microsoft-to-acquire-li...
  - Joeri 10y ago
    Why are any of those worth over a billion? Valuation should be assets - debts + future profits. In reality, mostly, it's psychology + voodoo magic - negative press.
    - eldavido 10y ago
      I used to think this way, then I spent the last decade watching my friends all get rich working at these kinds of companies. You need to look at the big picture here. Young people aren't watching TV. Ad spend by the likes of P&G, Nike, and the auto industry is still largely on TV. Also, Silicon Valley largely hasn't been able to capture brand advertising -- the spend on billboards, sports stadium advertising, etc vs. direct-response like Google AdWords. Ask anyone in the industry， they'll tell you direct-response spending is a drop in the bucket compared to spend on brand advertising. Now, tell me, one the ad industry wakes up and realizes how absurd it is to dump billions of ad spend onto a platform with rapidly declining viewership (linear TV), where is all that ad spend going to go? Maybe a communications platform that's used heavily by young people (great for advertisers), to send pictures and short videos (ads?) to each other in a playful, unhurried manner? I don't know whether that's worth $20 billion or whatever its "valuation" is, but these dumb cheap shots against ad supported tech company valuation need to end. These platforms are as big as like, several big TV networks combined in viewership, with about 100x better ad targeting. How isn't that worth billions?
      - mkhpalm 10y ago
        "How isn't that worth billions?" ad blockers
        happyslobro 10y ago
        I wonder if a "scorched earth" plan could be pitched to old school TV advertising giants, in order to score billions for adblocker research. Adblocking has "needs AI" written all over it.
  - cm2187 10y ago
    You could do all the comparables you want in 1999. That doesn't mean valuations were justified then.
- paulddraper 10y ago
  How else would you define worth, besides "what someone is willing to pay"?
kevindkeogh 10y ago
This is fundamentally wrong. As Matt Levine said, "proper phrasing is 'DB supports $1.7trn of assets with an equity value equal to SnapChat's'" [1] [1] https://twitter.com/matt_levine/status/742800372473946112 https://twitter.com/matt_levine/status/742800372473946112 Edit: For a more complete analysis of DB's capital position, they have published Moody's report on their credit. [2] I don't see much in there that would suggest DB was insolvent, but they do seem to be having some difficulty reorganizing their business. [2] https://www.db.com/ir/de/download/Moody_s_on_DB_26_May_2016.pdf https://www.db.com/ir/de/download/Moody_s_on_DB_26_May_2016....
- Spooky23 10y ago
  In normal circumstances, yes. But DB's solvency is in question. An insolvent bank is worthless.
  - cm3 10y ago
    DB may be insolvent, but to be fair, there aren't many banks that can pay out the figures recorded in the managed accounts. I recall one Utah bank which is supposedly able to, and there may be others, but usually a mainstream bank cannot fulfill 99% withdrawals of assets on short notice.
    - cm2187 10y ago
      I don't think any bank can. But it's not a capital problem, it's a liquidity problem. A bank, whether an internationally active, or a mum and pop local bank, is in the business of taking short term deposits and lending the money long term. Banks are required to cover some of their deposits in liquid assets so that it can sustain some level of stress. But a full scale run on the bank where all depositors want their money back would kill any bank, big or small.
      - cm3 10y ago
        Besides being off-the-books and under-the-radar, how was Madoff's operation different than that? Genuinely curious.
scribu 10y ago
> America sorted its banks out swiftly after the 2008 credit crisis. Is there general agreement that the US government acted effectively in this matter, not just for bankers, but for society as a whole?
- Retric 10y ago
  Nothing terrible happened to the US economy, compared to past banking failures I would call that a success. However, it's really hard to compare such things across vastly different time periods.
- cschep 10y ago
  Absolutely not.
- MagnumOpus 10y ago
  They acted quickly and avoided a worst-case outcome. As such it was effective. However, arguably the bank bailouts could have had much better terms for the taxpayer - most of the upside was realised by bank shareholders who were not wiped out, rather than the taxpayer who bore the risk. For comparison, Warren Buffet also recapitalised some banks in the depth of the crisis, demanded and got long-term warrants that paid out truly humongous amounts of money once bank shares rose back to pre-crisis levels. Tax payers - in comparison - got a few percent of interest rather than adequate compensation for the risk they bore.
- rukittenme 10y ago
  The effectiveness of the changes is subject to political interpretation. American banks are strong right now which indicates our policy decisions weren't bad. Whether they were good or not is debatable.
- rdiddly 10y ago
  That line is a whopper! All they managed to do was conceal fundamental problems a bit longer by offloading crap assets on the taxpayers. And, possibly, make the inevitable bank failures more spectacular and destructive when they do happen.
palmdeezy 10y ago
I used to work in the financial institutions group at a buldge bracket bank doing valuation and M&A on the banks team. The thing about bank valuation that's weird, is that it's balance sheet valuation and not income statement valuation. Banks don't sell things, they sell money. The make money off interest earned on loans - their cost of capital (~interest paid on deposits=0) - branch/hr overhead (if they have branches). Anyways, to compare a bank to another company that sells physical goods or widgets is kind of silly to begin with. They are not valued the same way, and they make money completely differently.
- palmdeezy 10y ago
  Want proof that this is total mathematical coincidence and irrelevant....if DB were going to sell itself, do you really think they would include SnapChat in the comps table? No.
- tosseraccount 10y ago
  "Bank Vaulations [are] weird" So are private Silicon Valley valuations.
- mathattack 10y ago
  Completely different model, and banks are weighed down by projected losses on bad assets. But the image is still valid, "Look at this formerly formidable mega-bank which has less equity value than a disappearing picture and video app." (Of course it's not a public market valuation, and much of the assets are supported in debt) European banking has been suffering along with Europe. Perhaps the bigger issue is that when banks get to such a low level of equity relative to debt, they have no cushion to absorb losses. Once the equity hits zero, they become insolvent and that's when the Lehman comparison becomes very valid.
- roymurdock 10y ago
  Ok, but if I wanted to buy enough shares to own DB or snapchat (if it were public at its current valuation) I would have to pay more to own Snapchat. So while it doesn't make sense to compare underlying assets/liabilities, it does make sense when you ask the question: how much would I need to pay to own this business?
abpavel 10y ago
*Current market valuation. I think it's an important differentiation. The underlying dynamics of the two companies are quite different, and I'm not sure their "worth" can be directly compared. One is worth a lot to the granny taking out cash from her pension fund, the other is worth a lot to the advertisers wanting to cash in on the cloud social services.
cm2187 10y ago
The guy who wrote that article is such an idiot. A reducing market capitalisation is not "shrinking the banks". It might mean the banks may be making less profits, but that doesn't make them safer, rather more dangerous on the contrary (as they can't climb their way out of a loss through earnings). Shrinking a bank means reducing its balance sheet, its leverage not its share price.
- hacknat 10y ago
  Totally, especially with leverage and a large notional insurance/derivitives liability. If reality moves in the wrong direction against that insurance and there's nothing but debt at the end to the payees, then too-big-to-fail cascade effects, ala late 2007, happen in the system again. This is why derivitives should be heavily regulated. IMO, even the most libertarian government would not allow a normal insurance company take on so much leveraged potential liability without at least a disclosure to the consumer that says, "Hey, this company probably can't payout the policy you just bought from them." Yet somehow it's okay for financial instruments? IMO, Dodd-Frank should have forced financial institutions to calculate their overall liability on derivitives as part of their capital requirements. This would never happen though, as they trade so rapidly most banks probably don't even know at any given time what would happen to their derivitives liability if the market swung wildly, either up or down. We're going to have another 2007 again, for sure. I have no idea when, but we did not solve the underlying problem at all.
  - atmosx 10y ago
    > This would never happen though, as they trade so rapidly most banks probably don't even know at any given time what would happen to their derivitives liability if the market swung wildly, either up or down. I think the technology is there to make it happen automatically. It's a deterministic system. The problem is the lack of political will to do so, which is appalling and leads to situations like Brexit and Trump.
    - SixSigma 10y ago
      Situations where people realise they have been decieved and decide to do something about it?
vermontdevil 10y ago
This is the same bank that has strong ties with Trump. http://www.wsj.com/articles/when-donald-trump-needs-a-loan-he-chooses-deutsche-bank-1458379806 http://www.wsj.com/articles/when-donald-trump-needs-a-loan-h...
- deleted 10y ago
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- angry-hacker 10y ago
  What is relevance here?
  - bogomipz 10y ago
    The relevance is that this is really shoddy journalism. It is slightly sensationalist and just plain wrong in its assertion that Lehman was the catalyst of the 2008 financial crisis. This is notable because Bloomberg is generally a respected news source for finance. Why on earth was my comment flagged?
roymurdock 10y ago
Can anyone who uses snapchat speak to how effective the introduction of the "Discovery" ads section has been.
bogomipz 10y ago
It was much more than just the failure of Lehman Brothers that brought the financial world to its knees in 2008. This article is rubbish. Comparing a Banks market cap to Snapchat? You can't take this seriously. I thought more of Bloomberg.
bmmayer1 10y ago
It's completely plausible that the post-Brexit Deutsche Bank is undervalued by the market due to panic and uncertainty, and Snapchat is overvalued by the market due to hype.
- cm2187 10y ago
  I agree. Although in the case of banks, a panic can be self fulfilling. DB may be well capitalised and have sound assets, but if there is a market panic and no wholesale investor will roll their funding with them (as happened after Lehman went bust), and retail depositors start a run on the bank, the bank will go bust. Even if it is solvent. The liquidity requirements introduced after Lehman should be sufficient for banks to sustain another Lehman scenario but you could imagine an even more severe stress.
  - Malarkey73 10y ago
    Hell will freeze over before the German government lets Deutsche Bank go bust. They let Greece go bust rather than the Landesbank.
    - cm2187 10y ago
      Actually I think what would happen would neither be a bail out or DB going bust, but a bail-in (which I described in another post): https://news.ycombinator.com/item?id=12065996 https://news.ycombinator.com/item?id=12065996
    - tim333 10y ago
      >They let Greece go bust rather than the Landesbank. It more a case they may have to bail out Greece rather than letting it default and take out the Landesbank. A lot of the problems could be prevented by the German controlled ECB easing monetary policy and aiming for say 2% inflation rather than the present 0%.
      - Tomte 10y ago
        As I like to point out whenever people claim that the ECB is controlled by Germany: Germany has a very small minority of the votes in the controlling gremium.
dschiptsov 10y ago
Since when Snapchat is a publicly traded corporation? Snapchat valuation is nonsense.
bjornsing 10y ago
General argument of this story seems to be that "if an industry is not doing well in the open market it needs taxpayer doleouts to prop up share prices". Europe has tried that many times before (e.g. with the shipping industry) and it has always ended in tears... Let's not go down that road yet again!
majc2 10y ago
> When the biggest bank in Europe's biggest economy, with annual revenue of about 37 billion euros, is worth about the same as Snapchat -- a messaging app that generated just $59 million of revenue last year -- you know something's wrong. More on the Snapchat side, than the DB side.
return0 10y ago
If we follow the cheeky title, snapchat has the chance of a lifetime to buy its way to profitability.
idong1veafu 10y ago
Yes, I wonder what's going to happen to those VC money poured into unreal valuations in Silicon Valley, if the banks in the Eu start imploding...
- rorykoehler 10y ago
  Logic would have it that more money would pour into SV and VC in general. Say €500B new money is pumped into the Eurozone banks, where is that money going to go? The boom in VC financing post 2007 is by in large due to the surplus 'free' cash that was floating around the US and global economies due to quantitive easing. More money means more competition for equal amount of startups which points towards valuations being pushed even higher.
rsp1984 10y ago
Snapchat is not 'worth' 17 billion. Some investors start to make money on the investment iff Snapchat exits or IPOs above 17b, but that's about it. The term 'valuation' is completely misleading when applying it to this 17b number. In fact, due to liquidation preferences in the term sheets Snapchat's true valuation (i.e. the point at which investors actually lose money) immediately post investment, according to basic math, is $0.
- jonknee 10y ago
  I think Facebook would make a $17b offer, but that the actual number is significantly higher. Snapchat is much more of a threat to Facebook than Whatsapp and FB had no problem opening up the piggy bank to grab it.
joeyspn 10y ago
Comparing Snapchat with Deutsche Bank sounds like a (bad) joke. Snapchat could go bankrupt and everyone would laugh at it... DB will never go bankrupt and here's a simple pic that explains why: https://pbs.twimg.com/media/CbBMXbTWAAAl-PG.png https://pbs.twimg.com/media/CbBMXbTWAAAl-PG.png It's another league. That could cause a x10 times Lehman. Too big to fail. If DB falls, the rest of the world follows suit... Another pearl from the article: > If the rot isn't stopped soon, Europe will have found a novel solution to the too-big-to-fail problem -- by allowing its banks to shrink until they're too small to be fit for purpose. Really? and what about the derivatives exposure?
- adrenalinelol 10y ago
  A bank failure doesn't have to happen overnight (Lehman), it can happen over a protracted period of time, in which there will be no systemic risk to the global banking establishment. In 2007, every bank was playing dirty w/Credit Default Swaps + CDOs -> "if our balance sheet is loaded with garbage, then the other guy's is too" -> no lending -> credit crisis. The only thing the DB "has" that is toxic is crappy management. BoA won't reconsider it's lending to JPM Chase because of DB, as would've been the case in 2007.
  - joeyspn 10y ago
    > A bank failure doesn't have to happen overnight A confirmed bankruptcy of Deutsche Bank would be followed by the collapse of 10s of banks, not in a day but maybe few weeks. Quick enough for unleashing the biggest financial armageddon in the western world. > there will be no systemic risk to the global banking establishment [...] Are you sure? on June 30th the IMF said exactly the contrary: "Deutsche Bank Poses Greatest Risk to Financial System" http://www.nasdaq.com/article/deutsche-bank-poses-greatest-risk-to-financial-system-imf-says--2nd-update-20160630-00064 http://www.nasdaq.com/article/deutsche-bank-poses-greatest-r... or in a simple pic: http://cf.broadsheet.ie/wp-content/uploads/2016/06/risks.jpg http://cf.broadsheet.ie/wp-content/uploads/2016/06/risks.jpg
solidangle 10y ago
The title seems to suggest that this due to the Brexit, but in reality the value of Deutsche Bank has been in decline since the financial crisis of 2007-2008. http://www.visualcapitalist.com/chart-epic-collapse-deutsche-bank/ http://www.visualcapitalist.com/chart-epic-collapse-deutsche...
TheOtherHobbes 10y ago
This story has moved on. There's already talk of an urgent need for a 150bn Euro bailout. http://www.welt.de/finanzen/article156924408/Deutsche-Bank-Chefoekonom-fordert-150-Milliarden.html http://www.welt.de/finanzen/article156924408/Deutsche-Bank-C... Or the slightly more sensationalised English version: http://www.zerohedge.com/news/2016-07-10/deutsche-banks-chief-economist-calls-%E2%82%AC150-billion-bailout-european-banks http://www.zerohedge.com/news/2016-07-10/deutsche-banks-chie... Comparisons to $UNICORN are irrelevant. If DB melts down, 2008 will look like an inconsequential stutter.
- neuromancer2701 10y ago
  Yeah, I like the illustration that Brexit is Bear Stearns especially because the market has recovered in the last two weeks(as it did with BS in 2007) and a DB implosion would be the Lehman Brother for the next collapse.
fharper1961 10y ago
Another salvo in the continual barrage of "why we always need to bail-out banks"from the financial media.
ChuckMcM 10y ago
Thanks for updating the title. I wonder sometimes if the residual malaise in the economy is about not writing off the bad loans. Cancel the loan, roll up the debt. Painful yes, and disruptive, but one way to recalibrate investment risk and to normalize capital flows more accurately.
- WillPostForFood 10y ago
  That's pretty much the classic Keynes vs Hayek debate. https://www.youtube.com/watch?v=d0nERTFo-Sk https://www.youtube.com/watch?v=d0nERTFo-Sk
  - ChuckMcM 10y ago
    Pretty much, I love that video btw.
adrenalinelol 10y ago
The pessimism around Snapchat in this thread is reminiscent of the negativity surrounding Facebook. Advertising is moving to social media, Snapchat is currently the best platform for targeting the demographic advertisers value the most (young people).
oneloop 10y ago
What does this have to do with Brexit? The graph on Italy's banking system bad loans starting rising during the 2008 crisis.
urbanxs 10y ago
Let england pay
beedogs 10y ago
It's pretty annoying when the discussion here revolves around the title of the article, and then the admins go and change the title on HN. Stop doing that.
acd 10y ago
Central banks does not fix the economy. Maybe the Brexit was a analogy to poker play call on central bank strategy whatever it takes print new money as central bank debt. Central bank balancec sheet vs inflation expectation http://www.zerohedge.com/news/2016-07-05/central-bank-death-cross http://www.zerohedge.com/news/2016-07-05/central-bank-death-...

201 points by vool 10y ago

> now worth just 17 billion euros 'Worth' as defined by 'what someone is willing to pay'? Saying Snapchat is 'worth' 17 billion euros is completely and utter nonsense.

nxzero 10y ago
Please explain why taking into account sudo comparable sells/offers such as Slack, WhatsApp, etc. EDIT: As noted below in the comments, LinkedIn was bought for 26 Billion in cash by Microsoft.
- cm3 10y ago
  The point is that there won't be an all-cash 17bn transaction for Snapchat. I'm unaware of a SV startup sale in that dimension which happened in mostly cash. Usually, and I may be missing some deals, it's part cash and mostly shares of the buyer.
  - nbclark 10y ago
    LinkedIn, while not really a startup, was an all cash purchase.
    - cm3 10y ago
      Interesting, do you have a source for that? All I recall is that LinkedIn is struggling and it's hard to understand why MS would pay 26bn (http://www.recode.net/2016/6/13/11920416/linkedin-acquisition-microsoft-reasons http://www.recode.net/2016/6/13/11920416/linkedin-acquisitio...).
      - itsprofitbaron 10y ago
        "Microsoft Corp. (Nasdaq: MSFT) and LinkedIn Corporation (NYSE: LNKD) on Monday announced they have entered into a definitive agreement under which Microsoft will acquire LinkedIn for $196 per share in an all-cash transaction valued at $26.2 billion, inclusive of LinkedIn’s net cash" http://news.microsoft.com/2016/06/13/microsoft-to-acquire-linkedin/ http://news.microsoft.com/2016/06/13/microsoft-to-acquire-li...
- Joeri 10y ago
  Why are any of those worth over a billion? Valuation should be assets - debts + future profits. In reality, mostly, it's psychology + voodoo magic - negative press.
  - eldavido 10y ago
    I used to think this way, then I spent the last decade watching my friends all get rich working at these kinds of companies. You need to look at the big picture here. Young people aren't watching TV. Ad spend by the likes of P&G, Nike, and the auto industry is still largely on TV. Also, Silicon Valley largely hasn't been able to capture brand advertising -- the spend on billboards, sports stadium advertising, etc vs. direct-response like Google AdWords. Ask anyone in the industry， they'll tell you direct-response spending is a drop in the bucket compared to spend on brand advertising. Now, tell me, one the ad industry wakes up and realizes how absurd it is to dump billions of ad spend onto a platform with rapidly declining viewership (linear TV), where is all that ad spend going to go? Maybe a communications platform that's used heavily by young people (great for advertisers), to send pictures and short videos (ads?) to each other in a playful, unhurried manner? I don't know whether that's worth $20 billion or whatever its "valuation" is, but these dumb cheap shots against ad supported tech company valuation need to end. These platforms are as big as like, several big TV networks combined in viewership, with about 100x better ad targeting. How isn't that worth billions?
    - mkhpalm 10y ago
      "How isn't that worth billions?" ad blockers
      - happyslobro 10y ago
        I wonder if a "scorched earth" plan could be pitched to old school TV advertising giants, in order to score billions for adblocker research. Adblocking has "needs AI" written all over it.
- cm2187 10y ago
  You could do all the comparables you want in 1999. That doesn't mean valuations were justified then.
paulddraper 10y ago
How else would you define worth, besides "what someone is willing to pay"?

kevindkeogh 10y ago

This is fundamentally wrong. As Matt Levine said, "proper phrasing is 'DB supports $1.7trn of assets with an equity value equal to SnapChat's'" [1] [1] https://twitter.com/matt_levine/status/742800372473946112 https://twitter.com/matt_levine/status/742800372473946112 Edit: For a more complete analysis of DB's capital position, they have published Moody's report on their credit. [2] I don't see much in there that would suggest DB was insolvent, but they do seem to be having some difficulty reorganizing their business. [2] https://www.db.com/ir/de/download/Moody_s_on_DB_26_May_2016.pdf https://www.db.com/ir/de/download/Moody_s_on_DB_26_May_2016....

Spooky23 10y ago
In normal circumstances, yes. But DB's solvency is in question. An insolvent bank is worthless.
- cm3 10y ago
  DB may be insolvent, but to be fair, there aren't many banks that can pay out the figures recorded in the managed accounts. I recall one Utah bank which is supposedly able to, and there may be others, but usually a mainstream bank cannot fulfill 99% withdrawals of assets on short notice.
  - cm2187 10y ago
    I don't think any bank can. But it's not a capital problem, it's a liquidity problem. A bank, whether an internationally active, or a mum and pop local bank, is in the business of taking short term deposits and lending the money long term. Banks are required to cover some of their deposits in liquid assets so that it can sustain some level of stress. But a full scale run on the bank where all depositors want their money back would kill any bank, big or small.
    - cm3 10y ago
      Besides being off-the-books and under-the-radar, how was Madoff's operation different than that? Genuinely curious.

scribu 10y ago

> America sorted its banks out swiftly after the 2008 credit crisis. Is there general agreement that the US government acted effectively in this matter, not just for bankers, but for society as a whole?

Retric 10y ago
Nothing terrible happened to the US economy, compared to past banking failures I would call that a success. However, it's really hard to compare such things across vastly different time periods.
cschep 10y ago
Absolutely not.
MagnumOpus 10y ago
They acted quickly and avoided a worst-case outcome. As such it was effective. However, arguably the bank bailouts could have had much better terms for the taxpayer - most of the upside was realised by bank shareholders who were not wiped out, rather than the taxpayer who bore the risk. For comparison, Warren Buffet also recapitalised some banks in the depth of the crisis, demanded and got long-term warrants that paid out truly humongous amounts of money once bank shares rose back to pre-crisis levels. Tax payers - in comparison - got a few percent of interest rather than adequate compensation for the risk they bore.
rukittenme 10y ago
The effectiveness of the changes is subject to political interpretation. American banks are strong right now which indicates our policy decisions weren't bad. Whether they were good or not is debatable.
rdiddly 10y ago
That line is a whopper! All they managed to do was conceal fundamental problems a bit longer by offloading crap assets on the taxpayers. And, possibly, make the inevitable bank failures more spectacular and destructive when they do happen.

palmdeezy 10y ago

I used to work in the financial institutions group at a buldge bracket bank doing valuation and M&A on the banks team. The thing about bank valuation that's weird, is that it's balance sheet valuation and not income statement valuation. Banks don't sell things, they sell money. The make money off interest earned on loans - their cost of capital (~interest paid on deposits=0) - branch/hr overhead (if they have branches). Anyways, to compare a bank to another company that sells physical goods or widgets is kind of silly to begin with. They are not valued the same way, and they make money completely differently.

palmdeezy 10y ago
Want proof that this is total mathematical coincidence and irrelevant....if DB were going to sell itself, do you really think they would include SnapChat in the comps table? No.
tosseraccount 10y ago
"Bank Vaulations [are] weird" So are private Silicon Valley valuations.
mathattack 10y ago
Completely different model, and banks are weighed down by projected losses on bad assets. But the image is still valid, "Look at this formerly formidable mega-bank which has less equity value than a disappearing picture and video app." (Of course it's not a public market valuation, and much of the assets are supported in debt) European banking has been suffering along with Europe. Perhaps the bigger issue is that when banks get to such a low level of equity relative to debt, they have no cushion to absorb losses. Once the equity hits zero, they become insolvent and that's when the Lehman comparison becomes very valid.
roymurdock 10y ago
Ok, but if I wanted to buy enough shares to own DB or snapchat (if it were public at its current valuation) I would have to pay more to own Snapchat. So while it doesn't make sense to compare underlying assets/liabilities, it does make sense when you ask the question: how much would I need to pay to own this business?

abpavel 10y ago

*Current market valuation. I think it's an important differentiation. The underlying dynamics of the two companies are quite different, and I'm not sure their "worth" can be directly compared. One is worth a lot to the granny taking out cash from her pension fund, the other is worth a lot to the advertisers wanting to cash in on the cloud social services.

cm2187 10y ago

The guy who wrote that article is such an idiot. A reducing market capitalisation is not "shrinking the banks". It might mean the banks may be making less profits, but that doesn't make them safer, rather more dangerous on the contrary (as they can't climb their way out of a loss through earnings). Shrinking a bank means reducing its balance sheet, its leverage not its share price.

hacknat 10y ago
Totally, especially with leverage and a large notional insurance/derivitives liability. If reality moves in the wrong direction against that insurance and there's nothing but debt at the end to the payees, then too-big-to-fail cascade effects, ala late 2007, happen in the system again. This is why derivitives should be heavily regulated. IMO, even the most libertarian government would not allow a normal insurance company take on so much leveraged potential liability without at least a disclosure to the consumer that says, "Hey, this company probably can't payout the policy you just bought from them." Yet somehow it's okay for financial instruments? IMO, Dodd-Frank should have forced financial institutions to calculate their overall liability on derivitives as part of their capital requirements. This would never happen though, as they trade so rapidly most banks probably don't even know at any given time what would happen to their derivitives liability if the market swung wildly, either up or down. We're going to have another 2007 again, for sure. I have no idea when, but we did not solve the underlying problem at all.
- atmosx 10y ago
  > This would never happen though, as they trade so rapidly most banks probably don't even know at any given time what would happen to their derivitives liability if the market swung wildly, either up or down. I think the technology is there to make it happen automatically. It's a deterministic system. The problem is the lack of political will to do so, which is appalling and leads to situations like Brexit and Trump.
  - SixSigma 10y ago
    Situations where people realise they have been decieved and decide to do something about it?

vermontdevil 10y ago

This is the same bank that has strong ties with Trump. http://www.wsj.com/articles/when-donald-trump-needs-a-loan-he-chooses-deutsche-bank-1458379806 http://www.wsj.com/articles/when-donald-trump-needs-a-loan-h...

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angry-hacker 10y ago
What is relevance here?
- bogomipz 10y ago
  The relevance is that this is really shoddy journalism. It is slightly sensationalist and just plain wrong in its assertion that Lehman was the catalyst of the 2008 financial crisis. This is notable because Bloomberg is generally a respected news source for finance. Why on earth was my comment flagged?

roymurdock 10y ago

Can anyone who uses snapchat speak to how effective the introduction of the "Discovery" ads section has been.

bogomipz 10y ago

It was much more than just the failure of Lehman Brothers that brought the financial world to its knees in 2008. This article is rubbish. Comparing a Banks market cap to Snapchat? You can't take this seriously. I thought more of Bloomberg.

bmmayer1 10y ago

It's completely plausible that the post-Brexit Deutsche Bank is undervalued by the market due to panic and uncertainty, and Snapchat is overvalued by the market due to hype.

cm2187 10y ago
I agree. Although in the case of banks, a panic can be self fulfilling. DB may be well capitalised and have sound assets, but if there is a market panic and no wholesale investor will roll their funding with them (as happened after Lehman went bust), and retail depositors start a run on the bank, the bank will go bust. Even if it is solvent. The liquidity requirements introduced after Lehman should be sufficient for banks to sustain another Lehman scenario but you could imagine an even more severe stress.
- Malarkey73 10y ago
  Hell will freeze over before the German government lets Deutsche Bank go bust. They let Greece go bust rather than the Landesbank.
  - cm2187 10y ago
    Actually I think what would happen would neither be a bail out or DB going bust, but a bail-in (which I described in another post): https://news.ycombinator.com/item?id=12065996 https://news.ycombinator.com/item?id=12065996
  - tim333 10y ago
    >They let Greece go bust rather than the Landesbank. It more a case they may have to bail out Greece rather than letting it default and take out the Landesbank. A lot of the problems could be prevented by the German controlled ECB easing monetary policy and aiming for say 2% inflation rather than the present 0%.
    - Tomte 10y ago
      As I like to point out whenever people claim that the ECB is controlled by Germany: Germany has a very small minority of the votes in the controlling gremium.

dschiptsov 10y ago

Since when Snapchat is a publicly traded corporation? Snapchat valuation is nonsense.

bjornsing 10y ago

General argument of this story seems to be that "if an industry is not doing well in the open market it needs taxpayer doleouts to prop up share prices". Europe has tried that many times before (e.g. with the shipping industry) and it has always ended in tears... Let's not go down that road yet again!

majc2 10y ago

> When the biggest bank in Europe's biggest economy, with annual revenue of about 37 billion euros, is worth about the same as Snapchat -- a messaging app that generated just $59 million of revenue last year -- you know something's wrong. More on the Snapchat side, than the DB side.

return0 10y ago

If we follow the cheeky title, snapchat has the chance of a lifetime to buy its way to profitability.

idong1veafu 10y ago

Yes, I wonder what's going to happen to those VC money poured into unreal valuations in Silicon Valley, if the banks in the Eu start imploding...

rorykoehler 10y ago
Logic would have it that more money would pour into SV and VC in general. Say €500B new money is pumped into the Eurozone banks, where is that money going to go? The boom in VC financing post 2007 is by in large due to the surplus 'free' cash that was floating around the US and global economies due to quantitive easing. More money means more competition for equal amount of startups which points towards valuations being pushed even higher.

rsp1984 10y ago

Snapchat is not 'worth' 17 billion. Some investors start to make money on the investment iff Snapchat exits or IPOs above 17b, but that's about it. The term 'valuation' is completely misleading when applying it to this 17b number. In fact, due to liquidation preferences in the term sheets Snapchat's true valuation (i.e. the point at which investors actually lose money) immediately post investment, according to basic math, is $0.

jonknee 10y ago
I think Facebook would make a $17b offer, but that the actual number is significantly higher. Snapchat is much more of a threat to Facebook than Whatsapp and FB had no problem opening up the piggy bank to grab it.

joeyspn 10y ago

Comparing Snapchat with Deutsche Bank sounds like a (bad) joke. Snapchat could go bankrupt and everyone would laugh at it... DB will never go bankrupt and here's a simple pic that explains why: https://pbs.twimg.com/media/CbBMXbTWAAAl-PG.png https://pbs.twimg.com/media/CbBMXbTWAAAl-PG.png It's another league. That could cause a x10 times Lehman. Too big to fail. If DB falls, the rest of the world follows suit... Another pearl from the article: > If the rot isn't stopped soon, Europe will have found a novel solution to the too-big-to-fail problem -- by allowing its banks to shrink until they're too small to be fit for purpose. Really? and what about the derivatives exposure?

adrenalinelol 10y ago
A bank failure doesn't have to happen overnight (Lehman), it can happen over a protracted period of time, in which there will be no systemic risk to the global banking establishment. In 2007, every bank was playing dirty w/Credit Default Swaps + CDOs -> "if our balance sheet is loaded with garbage, then the other guy's is too" -> no lending -> credit crisis. The only thing the DB "has" that is toxic is crappy management. BoA won't reconsider it's lending to JPM Chase because of DB, as would've been the case in 2007.
- joeyspn 10y ago
  > A bank failure doesn't have to happen overnight A confirmed bankruptcy of Deutsche Bank would be followed by the collapse of 10s of banks, not in a day but maybe few weeks. Quick enough for unleashing the biggest financial armageddon in the western world. > there will be no systemic risk to the global banking establishment [...] Are you sure? on June 30th the IMF said exactly the contrary: "Deutsche Bank Poses Greatest Risk to Financial System" http://www.nasdaq.com/article/deutsche-bank-poses-greatest-risk-to-financial-system-imf-says--2nd-update-20160630-00064 http://www.nasdaq.com/article/deutsche-bank-poses-greatest-r... or in a simple pic: http://cf.broadsheet.ie/wp-content/uploads/2016/06/risks.jpg http://cf.broadsheet.ie/wp-content/uploads/2016/06/risks.jpg

solidangle 10y ago

The title seems to suggest that this due to the Brexit, but in reality the value of Deutsche Bank has been in decline since the financial crisis of 2007-2008. http://www.visualcapitalist.com/chart-epic-collapse-deutsche-bank/ http://www.visualcapitalist.com/chart-epic-collapse-deutsche...

TheOtherHobbes 10y ago

This story has moved on. There's already talk of an urgent need for a 150bn Euro bailout. http://www.welt.de/finanzen/article156924408/Deutsche-Bank-Chefoekonom-fordert-150-Milliarden.html http://www.welt.de/finanzen/article156924408/Deutsche-Bank-C... Or the slightly more sensationalised English version: http://www.zerohedge.com/news/2016-07-10/deutsche-banks-chief-economist-calls-%E2%82%AC150-billion-bailout-european-banks http://www.zerohedge.com/news/2016-07-10/deutsche-banks-chie... Comparisons to $UNICORN are irrelevant. If DB melts down, 2008 will look like an inconsequential stutter.

neuromancer2701 10y ago
Yeah, I like the illustration that Brexit is Bear Stearns especially because the market has recovered in the last two weeks(as it did with BS in 2007) and a DB implosion would be the Lehman Brother for the next collapse.

fharper1961 10y ago

Another salvo in the continual barrage of "why we always need to bail-out banks"from the financial media.

ChuckMcM 10y ago

Thanks for updating the title. I wonder sometimes if the residual malaise in the economy is about not writing off the bad loans. Cancel the loan, roll up the debt. Painful yes, and disruptive, but one way to recalibrate investment risk and to normalize capital flows more accurately.

WillPostForFood 10y ago
That's pretty much the classic Keynes vs Hayek debate. https://www.youtube.com/watch?v=d0nERTFo-Sk https://www.youtube.com/watch?v=d0nERTFo-Sk
- ChuckMcM 10y ago
  Pretty much, I love that video btw.

adrenalinelol 10y ago

The pessimism around Snapchat in this thread is reminiscent of the negativity surrounding Facebook. Advertising is moving to social media, Snapchat is currently the best platform for targeting the demographic advertisers value the most (young people).

oneloop 10y ago

What does this have to do with Brexit? The graph on Italy's banking system bad loans starting rising during the 2008 crisis.

urbanxs 10y ago

Let england pay

beedogs 10y ago

It's pretty annoying when the discussion here revolves around the title of the article, and then the admins go and change the title on HN. Stop doing that.

acd 10y ago

Central banks does not fix the economy. Maybe the Brexit was a analogy to poker play call on central bank strategy whatever it takes print new money as central bank debt. Central bank balancec sheet vs inflation expectation http://www.zerohedge.com/news/2016-07-05/central-bank-death-cross http://www.zerohedge.com/news/2016-07-05/central-bank-death-...