Hey everyone Me: Kevin Here we gotta talk about the craziness of the Swiss banking system. What the heck? The differences are between Credit Suisse and Deutsche Bank because they're a pretty big deal. A lot of people freaking out right now saying that's it. Deutsche Bank is the next chew to drop.

In fact, we saw their credit default swap Skyrocket to levels that started reminding us some of the 2008 financial crisis. but even recently we've been at levels at such Spike levels of Greater defaults webs in October leading to the thought that the stress is about to explode even further and the shoe will finally drop being the next Domino to fall. First it was Archangos, then it was three arrows Capital Then it was Terra Luna. Then it was brokerages like block Five and FTX and Voyager digital along with others.

Then came Signature Bank and Silicon Valley Bank and Silvergate, two of those having massive crypto exposure, being massive crypto one ramps, and one of them being a massive setup for startups in Silicon Valley. Basically, people with a lot of wealth using these particular Banks And guess what happened? These Banks got bailed out by our government because after all, that's what our government does, it bails out the rich people Banks And therefore, it's no surprise that Credit Suisse was essentially also bailed out on behalf of rich people. Remember the old saying get a Swiss bank accounts or base Swiss bank account? The reason for that was because back in the day, you actually used to be able to make money, have that money wired to your Swiss bank Account. and the Swiss would just be like Vido novel money came from.

But we don't care, we are just grateful to have you as customer here. Thank you very much. And the idea is hey, if you don't deposit it to a U.S Bank How's the US going to know to tax it now? Some of those loopholes have since been closed. The Internal Revenue Service for example, has a deal that requires Swiss banks to report American deposits in their Banks.

So that way the eye the ah and the S contacts you and make sure they get their money. But isn't it interesting that it always seems like the rich people banks are the ones that get bailed out compared to poor people. consider this in America. Guess who pays most of the overdraft fees in America Is it the top 10 percent? The top 50 percent? The bottom 50 percent? No folks in America The vast majority of all overdraft fees according to a Princeton sociologist interviewed by Bloomberg is paid for by the bottom nine percent of account holders.

Poor people pay all the fees. Rich people don't pay all the fees and get bailed out. The reason for that is simple: rich people have a choice with where to put their money. For poor people, it's actually surprisingly difficult to continue to move bank accounts.

You have to come in to schedule why, Or a pay wire fees, Pay overdraft fees Bank account fees. It's insane. Rich people get a personal banker who they can call up on their cell phone and go yo I Need to send a 250k wire here there or whatever and it's done immediately for free. Poor people want to cancel a credit card? They get sent to the retention department and they have to spend an hour on the phone to cancel a credit card.

Rich people send a one-line email to their personal banker and it's considered done. There are big differences between the rich and the poor. America There are also big differences between Credit Suisse and Deutsche Bank And quite frankly, it's not just America where you have these differences. it's quite frankly, the entire world.

Now some people get mad at me for suggesting that, oh, how could you call it a bailout? That signature Valley Bank got bailed out. It wasn't a bailout. Uh, yes, it was the Federal Reserve created the B T F P facility. that facility enabled liquidity for Silicon Valley Bank that it would otherwise have not gotten for its toxic assets in the free market.

That liquidity is a loan. If that loan doesn't get paid back, who is guaranteeing it? not the FED It's taxpayers because it's backstopped by treasury Appropriations which come from Congress which come from you the taxpayer. So yes, the taxpayer is guaranteeing you basically signed on the deposits at Silicon Valley Bank and the other sectors of the banking sector. Now many make the argument that, but come on.

Kevin these were systemically important I Mean, if they would have collapsed, then the entire system could have experienced Contagion Really? then why weren't they called systemically important from day one? Oh, because regulation that was loosened during the Trump Administration in 2018, which actually passed as a bipartisan measure, the only people voting against it were the furthest on the left. the more. Progressive Democrats Uh, and and that Lucent regulation for banks. And so that's how we ended up where we are now where basically taxpayers and borrower folks are once again bailing out richer folks.

So how is this also happening in Switzerland Well, the failure of Credit Suisse is not just unique because Credit Suisse was, after all, pretty toxic with all the scandals that it had. but Switzerland and its banking economy is basically everything Switzerland stands for: Switzerland's banking system is five times the size of its GDP Its banking system is the Swiss identity. Bankers Literally live in mansions around Zurich around Lake Zurich and they go into town to buy fancy watches and fancy stuff because banking is synonymous with Switzerland Back in the 1700s, it was actually a crime to disclose the details of an aristocrat who banked at Swiss banks. Listen to this: Adolf Hitler Where do you think he put his money when his book sales took off for his book? Mein Kampf Swiss Bank account.

You can't make this stuff up. Swiss Banking exceptionalism, especially for rich people, goes hundreds of years back. Hundreds of years back. And so it's incredible to see Credit Suisse fall and then at the same time, basically see taxpayers in Switzerland just like in America backstop the failure of their Rich People Bank.

But wait a minute I Thought: UBS is taking losses on the deal UBS Agreed to buy Credit Suisse for about 81 cents a share. Now they are agreeing at that purchase price to take about nine billion dollars of Fixer-Upper costs so they already know what their cost is. acquisition price plus Fixer-Upper It's kind of like buying a broken house by Price Plus my fix up that's already factored in for UBS Guess who's backstopping the next 15 billion dollars in losses? The Swiss taxpayer. In other words, if losses at Credit Suisse end up exceeding the Fixer-Upper budget, think of the house analogy.

If the budget goes above and beyond, the taxpayer pays, imagine this: You're a rich person. You buy a mansion, you literally buy a mansion, and you're like. my budget to fix this place up is 200 Grand And the government says if you go over budget, we'll bail you out. That's literally what is happening.

And they're doing this under the argument that, well, if the Swiss bank collapses, then that'll not only destroy potentially our national identity, but it'll be systemically that. Maybe that may be true, but it's still important to know that basically a rich person is buying a mansion that's a fixer-upper and the government is guaranteeing them above their Fixer-Upper budget. And the Fixer-Upper budget is nine billion dollars. And the government is saying our taxpayers I Don't know why I'm doing that.

Our taxpayers will bail you out to the tune of an additional 15 billion dollars if there are additional losses. So rightfully so. This is leading a lot of other people to wonder. Okay, who's next, and that's why eyes are on Deutsche Bank And it's important that we compare a little bit of Deutsche Bank to Credit Suisse because said jammins are at least a few hundred miles apart from Switzerland So it's worth talking about some of the differences.

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You won't regret it. Phenomenal way to get perspective on invest testing. Now, what about Deutsche Bank versus Credit Suisse Well, this gets interesting. So let's hop on over to Credit Suisse's last financial statement before they ended up going kaput and oopsie dupsies.

And if we look at their last oopsy-doopsy report, you could actually see that things just ain't that fantastic. So look at this: Credit Suisse's net revenues have actually been plummeting since the end of 2021. As reported in this document, Here, you could see that in 2021, net revenues at Credit Suisse were about 22.7 billion, which fell by nearly a third to just under 15 billion dollars actually fell by 34 percent. So just over a third and then the quarterly revenues have actually been suffering even more.

Look at just this fall from Q322 to Q4 2022. Yikes, that's a big oopsie dupsy. The revenues are plummeting. but not only are revenues plummeting at Credit Suisse or worse since obviously they failed and were bailed out.

Not only were revenues vomiting, but look at this. their losses have been mounting. They lost 600 million dollars in sorry, they lost. uh, this is in millions.

Yeah, wow, Oh my. Lord They lost 600 million dollars at the end of 2021. They lost 3.2 billion dollars at the end of 2022. Then they lost 3 or 1.3 billion dollars just in the fourth quarter alone of Q4.

So you could look at this company and go dang, this company's absolutely been getting reamed. Absolutely been getting reamed. How does this company end up comparing to Deutsche Bank Well, first, it's worth noting that this company was trading for a book value per share of about tangible book value per share. You could say that takes out the intangibles of about ten dollars and sixty cents per share.

in January of 2022, this was trading for about 10.55 Obviously now it's trading for about 90. Uh, 80, 80 to 90 cents. That's because that's what it's getting bought out for because it failed. But this gives you a heads up of how ugly the actual earnings report looked for Deutsche Bank And all we did was look at one page of the earnings report.

Now all we're going to do, which makes it sound kind of lazy, but all we're going to do is look at the earnings report for Deutsche Bank and we'll look at the same one page essentially for Deutsche Bank. That is Not it. It is right over here. We're gonna look at the same report for this company.

and if any of this makes you nervous, get life insurance in as little as five minutes by going to Metcavin.com Life and 12 free Stocks by going to Metcaven.com Weeble Keep in mind those are sponsored which means I make money if you sign up for those. but it is okay for people to make money. Remember if you have that feeling of like why do you want somebody else maybe what you get Wonderful free information perspective over here and you can get quality products that I use on a daily basis. whether that's Weeble which I got right here on screen or it's life insurance which I also use Uh well I mean I haven't used it yet but I pay for it on a monthly basis I knock on wood.

Uh but anyway, so let's look at the revenues for Deutsche Bank What do we have in 2020 Fiscal year Net Revenues: 24 Billy 21 25 Billy 22 27 billion What do you notice? Ah, it's growing Seven percent growth. Uh, growth over here. Growth over. here.

you're growing. So that's fantastic. You actually have growing revenues at the bank. Great growing.

net revenue is fantastic. How about their profits? Well, they had a 600 million dollar profit in 2020. They had a 2.5 billion dollar profit in 2021 and then a 5.7 billion dollar profit in 2022.. So you actually have a profitable company where revenues are going up.

So for a moment, compare Credit Suisse and and uh, uh, Deutsche Bank Revenue is increasing versus decreasing. Income increasing versus decreasing Deutsche Bank January Around that same January time I showed you for Credit Suisse was trading for about fourteen dollars. Now it's trading for 9.35 The uh Book value for Deutsche Bank is sitting right now at about 29. Euros So you're actually trading at a discount to book right now of almost threefold.

How crazy is that? Uh, so so the book value? The tangible Book value. Well, let's look at tangible tangible book value per share which is the one below. It is 26.7 Euros per share. It's trading for 9.35 You are getting Deutsche Bank right now at one third on assets.

Which basically means its assets are written down 67 percent. So as long as their assets fall less than 67, maybe a Deutsche Bank is actually a buy. How weird is that? So then if you compare to JP Morgan who you know which company is basically deemed way too big to fail, what do you have over here? Well, JP Morgan is right now trading for 124.91 That's down uh from uh, 143 dollars recently and up from 101 as a low in October. But its Book value is sitting around ninety dollars per share.

So you can see JPMorgan is trading at a premium of Book value whereas Deutsche Bank is trading at a discount of about 67 percent on Book value. How crazy is that? That's pretty cool. now. that actually seems like a potential opportunity to buy the dip on Deutsche Bank Now I Personally have a rule not to buy anything related to financials in a recession.

It's a rule I have now, can rules be broken? Can you flip-flop Of course, Do I have any intention on flip-flopping on the banks right now? No. I Personally like to stay away from financials. However, does that discount look pretty damn juicy and are the fundamentals, at least from what we've seen relatively different from. uh, what we've seen with Credit Suisse Yeah, I mean a 67 discount on Deutsche Bank where the revenues are going up and the profit is going up hot.

Damn that looks juicy. So what happened with those credit default swaps? Well, even though credit default swap pricing skyrocketed on Friday because of fears that maybe Deutsche Bank would also fall, the credit default swap Market is really illiquid, so it's super volatile, and pricing for those Cds's actually already calmed by the close on. Friday So maybe the fears that Deutsche Bank will fall are actually fundamentally overblown. You should probably have more concern over smaller Banks Maybe like a First Republic because after all, that one right now is still presently being determined.

If basically First Republic is going to end up getting bailed out, uh, by the government, and there are fears that a bank run could be undermined. Now who knows. After all, Jerome Powell and secretary Yellen have told us, hey, don't worry, everything is basically guaranteed. Of course, they've had to walk back those comments and clarify that, well, only if you're systemically important.

Okay, well, what's systemically important? Well, it's whatever we feel like is systemically important and uh, it's very jaded. But I mean you hate to look at it and just say like, so where the rich people are eh? Again, jaded. But uh, you know it just seems to be consistently that case. So bottom line: Could the banking crisis continue? Absolutely.

But is it possible that the banking crisis ends? And if so, and more importantly, why? Well the answer is yes, the banking crisis could end, could be over and the more interesting Factor There is not saying yes, things could get worse or things could get better. What's more interesting is actually thinking wait a minute. Why? Well maybe Signature Bank And Silvergate failed because of their exposure to a very Niche industry. and that is Crypto on and off ramps which basically have been closed Even back.

Paxos is getting sued right now. It's basically just like Binance is the only player left, you know. We did a segment where we talked about how Binance controls 81 of the trading volume market for Bitcoin they basically run Bitcoin they can. They can pump it or dump it however they want.

They have complete control. So if you trust CZ great, you know you're safe with Bitcoin And this is not to bag on Bitcoin. It's just to say that maybe the Crypto Banks Were Meant to go under because Crypto went through hell. Maybe Signature Valley Bank was meant to go under because massively unprofitable startups don't deserve to survive in a recession.

Go figure out how to make some money stop burning so much damn cash. Learn how to run a cash flow statement. Learn how to actually run a startup. That's what we're doing at House Hack, Which by the way, if you're an accredited investor, that round closes in five days March 31st.

You can learn more about that by going to Housestack.com But anyway, Uh, so is it possible that Credit Suisse failed because its revenues were going down, its profits were declining, and it was known as being a very risky Bank Yes, so is it then not entirely possible that this banking crisis is really just a crisis of the riskiest Banks failing and everything else? Maybe it will be just signed? Yes, that's entirely possible. Now Some people have been begging me to look at First Republic in the comments. Fine. All obliged, because that's what I do I Don't know why, but I haven't I don't know I get enjoyment out of this.

So what do we get? So this is First Republic Let's just look. let's make this really simple. Let's look at their cash flow statement. Okay, so what are the cash flows at? Uh, First Republic Well, first things first: Net income increasing good.

That's fantastic. A Billy 1.4 Billy 1.6 Billy that's really good Is that? Yeah, that's in millions. Wow. 1.6 billion dollars of net income for First Republic Hot damn, That's actually pretty damn good.

What do you got over here? Net cash provided by operating activities. This is starting to go down a little bit here. Why, uh, where's their money going? Net change in assets right here. These are people withdrawing money potentially by the end of the year, so they're definitely seeing money go down.

net change in other assets I'm not sure, but we'll have to see uh or that I Mean it could be markdowns on available? No, but that's not I mean yeah I Guess that could be those could be losses. Net change in other assets could be losses on they're available for sale Securities which they're adding back in basically to their uh, that changed in other assets, but they're not adding them back into their cash flows. they're subtracting them. Uh, so these are just these have to be other expenses then I Wonder where they're coming from? Let's look at these.

Hold on a sec. Where are these expenses going? So non-interest expenses, other expense? Uh, we'll have to look at the footnotes. Information Systems Occupancy professional fees I Mean there's so much here. This is my first 30 seconds looking at this bank.

I Really don't care so much. what I care about is what's the net operating cash? Is this Okay, Yeah, so net increase or decrease in cash cash equivalents at the end of the period? Look at this. This is where you're starting to see some of that stress. and last.

Well, last year they had about 13 billion dollars in cash. The year before that, they had about 5.1 billion in cash. Right now they've got about 4.3 billion in cash. They still got a good amount of cash here, so that's pretty good.

and it looks like they're financing to take a lot of that. Here's a net change in deposits at the end of the quarter. Here's deposits there. We go: Here's 20 bill that came in.

That's about half half as many a deposits came in. Uh, this Q4 is this for the year? Uh, this year in 2022, then did the prior year. Less deposits came in in 2022, then came in in 2020.. they actually are borrowing money.

Look at this. They've borrowed short-term and long-term debt of about 10 Billy right here. So they are taking more money out and then now look at this. That's interesting too.

Proceeds from the Fhlb, and then purchases of Fhlb stock and other Investments Okay, that's fine. So they borrowed somebody here from the Fhlb. We know they're one of the big top 10 borrowers at the end of the quarter from the Fhlb, which is one of the reasons, by the way, people are flagging them as like potentially, uh, needing some more cash. But you could see really what's happened here is their deposits have halved and I wonder how the deposits are going to be for this year? I Mean this number is probably negative already for this year.

So they're you're going to have to borrow more money from the Fhlb. They'll have to probably liquidate some of the stock uh, potential Investments that they've made uh, dividends they actually paid dividends on preferred and Common Stocks That's probably gotta go. They repaid some of their long-term debt 500 mil, but they took 3.6 fill out so that's an offset. That's more borrowing on that.

And let's see here this is these are investing proceeds from sales and paydowns of available for sale. So they got about a 500 mil in cash from selling securities and then they are held to maturities. It looks like they actually put some more into hell to maturities. Uh, which is a nice way to hide losses.

But anyway, it it seems like if I had to sort of put a gauge on it, it seems somewhat in the middle of the road right? Like it doesn't seem toxic like Credit Suisse It doesn't seem as robust as Deutsche Bank But uh, it potentially could be slightly unfairly targeted in this whole banking crisis because I mean, they probably shouldn't have borrowed from the Fhlb. I Think that's why they ended up getting sort of this bat signal go up. That's like oh, that's it because as soon as you borrow from them, it becomes public and then you go on this list and you don't want to be on that list. The list I'll show it to you.

The list is uh of Hlb. This is the list that we talked about yesterday. Here are the top borrowers from Afhlb: Members WAMU Countrywide Maryland Wachovia They obviously went bankrupt or got absorbed. Then you have current top borrowers.

Oh, that's the TV wrong button. current top Borrowers And there they are. they're the second one. they're right under.

Silicon Valley Bank in terms of Q4 So kind of crazy and it should definitely encourage you to get life insurance in as little as five minutes. Make sure to get 12 free stocks at Kevin.com free actually I think it is. And make sure to check out the programs on building your health link down below. Is that working? I Think it's working I Hope it's working I Just push the button.

So anyway, bottom line: out of all of this, maybe just the riskiest banks are the ones that are going bankrupt. Credit Suisse Was a complete disaster, the crypto related ones on the startup related ones. Totally explainable. We could totally explain that away.

Only hindsight will tell in the future though, so we'll have to see anyway. Good luck and good part of the song. Uh, work on that. Oh dear.

All right, let's go next.