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May 4th, 2023 | 05:54 CEST

Bank quake and crack-up boom: Deutsche Bank, First Republic Bank, Tocvan Ventures

  • Mining
  • Commodities
  • Gold
  • Silver
  • Banking
Photo credits: pixabay.com

The banking tremors continue: With First Republic Bank and its distress sale to JP Morgan, it becomes clear once again that rising interest rates have the potential to plunge the economy into a deep crisis. Why? If the interbank business comes to a standstill, numerous zombie companies, of which there are still some, could also be in trouble. We explain in three minutes what threatens banks and the economy and why in the end, some shares could rise particularly sharply.

time to read: 3 minutes | Author: Nico Popp
ISIN: DEUTSCHE BANK AG NA O.N. | DE0005140008 , FST REP.BK S.FR.NEW DL-01 | US33616C1009 , TOCVAN VENTURES C | CA88900N1050

Table of contents:


    Dr. Thomas Gutschlag, CEO, Deutsche Rohstoff AG
    "[...] China's dominance is one of the reasons why we are so heavily involved in the tungsten market. Here, around 85% of production is in Chinese hands. [...]" Dr. Thomas Gutschlag, CEO, Deutsche Rohstoff AG

    Full interview

     

    First Republic: A special case

    Only recently it was announced that consumer prices within the Eurozone rose by 7% in April. After a short breather, this is a renewed acceleration of inflation. Food and energy, in particular, hit the headlines. These figures could lead the European Central Bank (ECB) to keep the monetary reins tight even longer than expected. This decision would be easy for the monetary guardians were it not for the situation of the banks. In the US and also in Switzerland, institutions have already been wound up because of problems in the course of the interest rate turnaround. Although institutions such as Deutsche Bank are considered much less at risk than First Republic Bank or Credit Suisse, industry experts point out that risks lie dormant deep in bank balance sheets that could only gradually come to light.

    Deutsche Bank: Sitting out the sour period

    While the interest rate turnaround is putting pressure on bond portfolios in particular, such portfolios are additionally hedged with futures and other derivatives. In some cases, banks also have derivatives on their books for which the respective institution has no underlying. In these cases, there is no classic hedging transaction, which in the worst case is a zero-sum game, but there are price risks, especially in times of interest rate reversals. If the banking quake were to spread further and affect not only regional banks or already troubled institutions, such as Credit Suisse, but also big players, counterparty risks could be added. If a counterparty in unsecured derivative deals defaults, the instruments become worthless. If such incidents accumulate, the entire market could grind to a halt.

    In addition, illiquid securities in bank balance sheets are usually not valued on a daily basis. On the one hand, this gives the opportunity to ride out a sour period, as is currently the case, but it also carries the risk of a rude awakening if securities are sold at a discount, and there is suddenly a current market price. The resulting need for write-downs could exacerbate the current banking crisis. Fortunately, it currently looks like large institutions can cope with the situation. Central banks are also ready to provide support. Although interest rates are likely to continue to rise moderately, at least within the Eurozone, the monetary guardians are simultaneously launching bond-buying programmes to stabilize the stumbling markets. At the beginning of the year, the ECB had bonds worth the equivalent of EUR 5 trillion in its portfolio. Since these securities are also suffering from rising interest rates, the central bank is in a dilemma despite its staying power.

    Tocvan Ventures: Crisis profiteer with cost advantages?

    In order to resolve this dilemma, central banks could be forced to take even greater risks and relieve banks, as they have in the past. Since over-indebted economies and companies would also benefit at the same time, such a step could be appropriate in the case of declining inflation. When central banks last opened the floodgates in 2020 in the wake of the pandemic, this led to a market rally. Besides bank shares, classic safe havens such as the precious metals sector could also benefit this time. The Canadian company Tocvan Ventures operates two promising projects in Mexico. The Pilar project recently convinced with high gold and silver grades. The El Picacho project benefits from its proximity to the San Francisco mine and is also considered promising. Since Tocvan Ventures enjoys cost advantages in Mexico - CEO Brodie Sutherland has in the past cited costs that are about a quarter lower than in other mining regions - the stock has also jumped in recent weeks.

    However, the value must still be considered largely unnoticed. While the market is currently paying close attention to banks and growth companies, stocks like Tocvan Ventures are still trading under the radar. Since Tocvan Ventures, as an exploration company, is speculative and valued at a risk discount, the stock could offer itself as a portfolio addition for a possible crack-up boom, i.e. a bull market in the wake of high inflation and support measures by central banks. Investors should continue to watch the share; the chart also looks promising.


    While banks are still under pressure and a recovery rally is only to be expected after comprehensive measures by the central banks, commodity stocks are already solidly supported. Precious metals have played to their strengths in the past, especially during crises. Second-tier stocks hold above-average potential in the event of a crack-up boom.


    Conflict of interest

    Pursuant to §85 of the German Securities Trading Act (WpHG), we point out that Apaton Finance GmbH as well as partners, authors or employees of Apaton Finance GmbH (hereinafter referred to as "Relevant Persons") may hold shares or other financial instruments of the aforementioned companies in the future or may bet on rising or falling prices and thus a conflict of interest may arise in the future. The Relevant Persons reserve the right to buy or sell shares or other financial instruments of the Company at any time (hereinafter each a "Transaction"). Transactions may, under certain circumstances, influence the respective price of the shares or other financial instruments of the Company.

    In addition, Apaton Finance GmbH is active in the context of the preparation and publication of the reporting in paid contractual relationships.

    For this reason, there is a concrete conflict of interest.

    The above information on existing conflicts of interest applies to all types and forms of publication used by Apaton Finance GmbH for publications on companies.

    Risk notice

    Apaton Finance GmbH offers editors, agencies and companies the opportunity to publish commentaries, interviews, summaries, news and the like on news.financial. These contents are exclusively for the information of the readers and do not represent any call to action or recommendations, neither explicitly nor implicitly they are to be understood as an assurance of possible price developments. The contents do not replace individual expert investment advice and do not constitute an offer to sell the discussed share(s) or other financial instruments, nor an invitation to buy or sell such.

    The content is expressly not a financial analysis, but a journalistic or advertising text. Readers or users who make investment decisions or carry out transactions on the basis of the information provided here do so entirely at their own risk. No contractual relationship is established between Apaton Finance GmbH and its readers or the users of its offers, as our information only refers to the company and not to the investment decision of the reader or user.

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    Der Autor

    Nico Popp

    At home in Southern Germany, the passionate stock exchange expert has been accompanying the capital markets for about twenty years. With a soft spot for smaller companies, he is constantly on the lookout for exciting investment stories.

    About the author



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