Deutsche Bank in dire straits

"I would be ashamed if we were to accept government money in this crisis," said Josef Ackermann, the former CEO of Deutsche Bank, in October 2008 when the world was gripped by panic over the global financial crisis.

Today we know that the bank did not need any state help at the time. It wasn't necessary as Deutsche was then making a decent chunk of money by indulging in massive tricks.

As a consequence, the bank is currently facing around 7,800 legal challenges across the world. The financial cost of settling all of them, including fines, is expected to run into billions. The bank has had to set aside this money, which could have been used to bolster the balance sheet of Germany's only financial institution with global reach.

Junk status soon

Deutsche Bank's global reputation and value have taken a hit in recent years. Its share price has lost as much as 90 percent of its value since 2009 and is currently languishing at an all time low of about 10 euros ($11.2).

That corresponds to a market capitalization of slightly over 14 billion euros, placing Deutsche in 78th place on the global rankings, nestled somewhere between banks from Malaysia and Brazil.

The bank's stock recently got kicked out from the Eurostoxx 50 index of the biggest European companies due to its lack of value. Deutsche Bank today is a bargain for investors. However, hardly anyone wants to buy its shares, as it has over 1.7 trillion euros worth of assets under management.

It's scary to imagine what would happen should the bank collapse. A new global financial crisis could erupt. That's because Deutsche Bank is a major player in the global financial system and is considered by the International Monetary Fund and other organizations as a systemically important institution, meaning it's too big to fail.

Should the bank therefore collapse, it could in all likelihood pull down the whole house of cards along with it. In this context, where should investors take confidence from and invest in the bank?

Disastrous US demand

The bank has yet to settle all the legal troubles arising from its past actions. There are still the unexplained money-laundering charges against the bank's Russian arm. And the bank could be fined billions of dollars as a result. Furthermore, there is the 14-billion-dollar settlement with the US Department of Justice for malpractices committed in the years leading up to the financial crisis.

It's now open to speculation whether this $14 billion penalty is merely retaliation for the EU's decision to order Apple to pay roughly the same amount in back taxes. (This speculation is most likely nonsense). Nevertheless, it shouldn't be rejected out of hand. It was the Americans after all who once let their mortgage market inflate to gigantic levels. They then elegantly packaged the risks and parked them in foreign banks. Now comes the US watchdog to cash up, and both domestic and foreign banks have to pay.

Taxpayers pick the tab?

But regardless of the truth behind the whole affair, Deutsche Bank is unlikely to be able to pay $14 billion to the US authorities. If the bank has to raise more capital, by issuing new shares, then it would have a negative impact on current shareholders by diluting the value of their existing shares.

Moreover, it would not be worth it at all as it's unclear as to who will actually want to buy the bank's shares. Buying them would be nothing more than a gamble.

Against this backdrop, the talk of state aid for the bank suddenly resurfaced. Soon afterwards, both the bank and the German government tried to dismiss the talk by labeling it as pure speculation. However, it's not as simple: surely, the bank can dispose off its investment banking division. There would also be some things to pick up.

But one thing is certain: Should Deutsche Bank actually run into trouble, then one can safely assume that the taxpayer will ultimately have to step in to save it. That's despite the promise of governments worldwide - including that of Chancellor Angela Merkel - that taxpayers will never again have to save a bank. Nonsense!

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