One can obtain the market value estimate by multiplying the book-value leverage ratio by the bank’s price-to-book ratio, which was 44.4 percent at the end of 2015. Thus, the contemporary market-value estimate of Deutsche’s leverage ratio was 2.71 percent times 44.4 percent = 1.20 percent. Since then Deutsche’s share price has fallen by almost 43 percent and Deutsche’s latest market-value leverage ratio is now about 0.71 percent.
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At the risk of having to eat my words, I can’t see Deutsche continuing to operate for much longer without some intervention: chronic has become acute. Besides its balance sheet problems, there is a cost of funding that exceeds its return on assets, its poor risk management, its antiquated IT legacy infrastructure, its inability to manage its own complexity and its collapsing profits — and the peak pain is still to hit. Deutsche reminds me of nothing more than a boxer on the ropes: one more blow could knock him out.
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Which consideration leads to the policy option of last resort — a good-old bad-old taxpayer-financed bail-out. Never mind that EU rules don’t allow it and never mind that we were promised never again. Never mind, whatever it takes.