<p><div class="KonaFilter image-container display-table float_right"><div><div class="image on-image"><p class="source"><span><a href="https://vimeo.com/162855085">Jacob T. Swinney/Vimeo</a></span></p></div><p></p></div></div>Goldman Sachs and Credit Suisse both told investors on Friday that the Deutsche Bank situation is not as bad as its share price would have you believe.</p><p>Deutsche Bank shares crashed by 7% in the US and Germany early Friday after <a href="http://uk.businessinsider.com/10-hedge-funds-pull-business-from-deustche-bank-shares-dive-september-30-2016-9">reports that hedge fund clients were restricting business with the bank to limit exposure</a>.</p><p>Shares plummeted close to 30-year lows earlier this week after reports surfaced that the US Department of Justice was looking to <a href="http://uk.businessinsider.com/deutsche-bank-is-getting-walloped-2016-9">impose a $14 billion fine for mortgage-backed security misselling in the run-up to the financial crisis</a>. The fine is bigger than the bank's market value, leading to fears the bank would be sunk.</p><p>There have also been reports in <a href="http://uk.businessinsider.com/german-government-denies-deutsche-bank-bailout-plans-2016-9">Germany that Berlin is preparing a bailout for the lender as a final backstop</a>, though the German government has repeatedly denied this. This from the bank that the <a href="http://uk.businessinsider.com/r-imf-says-deutsche-banks-global-links-make-it-biggest-potential-risk-2016-6">IMF said is the biggest risk to the global financial system in June.</a></p><p>Goldman Sachs says in a note to clients sent Friday: ""Crisis" questions are being asked: "is there risk of a financial crisis re-run" and "can a large European bank face a liquidity event"?"</p><p>The short answer? This isn't another crisis and liquidity is fine.</p><p>Credit Suisse said in a note sent to clients on Friday that "the price action overstates the short-term litigation risk," saying: "As in similar cases such as Goldman Sachs and Citigroup, we expect the ultimate settlement to be much smaller and in proportion with peers."</p><p>This has been Deutsche Bank's line all along, saying the $14 billion figure is just a starting point and it has no intention to settle anywhere near that level. Credit Suisse's Jon Peace reckons the final fine will be around €4 billion and says it could absorb €9 billion before capital requirement rules are breached.</p><p>Here's how Credit Suisse sees Deutsche's overall fines playing out (there are several outstanding issues):<div class="KonaFilter image-container display-table"><div><div class="image on-image"><p class="source"><span>Credit Suisse</span></p></div><p></p></div></div>Meanwhile, Goldman Sachs says in its own note sent to clients on Friday that Deutsche's "liquidity position is stable - and further strengthened by ECB funding backstops, which remain available to all Eurozone banks."</p><p>Deutsche Bank CEO John Cryan said much the same thing in a memo sent to staff on Friday, <a href="http://uk.businessinsider.com/report-deutsche-bank-ceo-tells-staff-market-forces-are-trying-to-undermine-us-2016-9">emphasizing that it has an "extremely comfortable buffer" when it comes to liquidity.</a></p><p>Deutsche Bank has liquidity reserves of €233 billion, according to Goldman, or around 20% of its balance sheet. It also has a liquidity coverage ratio of 124%, better than the likes of BNP Paribas and Citi.</p><p>The reassuring words from Goldman and Credit Suisse, as well as Cryan's memo, have helped prop up the share price. After tanking over 8% at the open in Frankfurt, Deutsche Bank shares are off just 2.3%.<div class="KonaFilter image-container display-table"><div><div class="image on-image"><p class="source"><span>Investing.com</span></p></div><p></p></div></div>But Goldman adds in its note that: "the reaction of (admittedly less liquid) ADR to a single piece of news flow demonstrates the extent of concern in the market. As we highlighted previously, as market concerns intensify, achieving resolution to litigation, and thus capital concerns, is important."</p><p>Credit Suisse also says: "The fundamental issue of low profitability and capital deficit remains."</p><p>So in summary: the current fuss over the Department of Justice fine is overdone but the bank still has some serious problems with its overall business model.</p>    <div class="margin-top">        <h3>NOW WATCH: <a href="http://www.businessinsider.com/mrs-doubtfire-house-market-over-four-million-dollars-san-francisco-2016-9">The 'Mrs. Doubtfire' house is on sale for $4.45 million - here's what it looks like 23 years later</a></h3>        <div>            <div>        <div class="ooyala-video-player" data-video-autoplay="false" data-video-id="1iMHU1NjE6e0PbyF1bQrwA459-C-jWWP" data-player-variable="ooyalapopvideo" id="ooyalaplayer_popvideo" style="width:1280px;height:720px"></div>        </div>        </div>            </div>

Goldman Sachs on Deutsche Bank: It's not as bad as you think

<p><div class="KonaFilter image-container display-table float_right"><div><div class="image on-image"></div><p></p></div></div>The rally stuck. </p><p>After markets surged early on Wednesday, the market started to give up its gains and a replay of Tuesday's action - when the Dow gained more than 400 points but closed down 200 - seemed in the cards.</p><p>But in the final hour of trading stocks rocketed higher, finishing near their highest levels of the day.</p><p>On a points basis, this was third-largest daily gain for the Dow ever, while the S&amp;P 500 had its best day since November 2011. </p><p>But the main story of markets in recent weeks - which is that of extreme volatility - is still very much alive.</p><p>First, the scoreboard:</p><ul><li><strong>Dow:</strong> 16,285.5, +619, (+3.95%)</li><li><strong>S&amp;P 500:</strong> 1,940.5, +72.9, (+3.9%)</li><li><strong>Nasdaq:</strong> 4,697.5, +191, (+4.2%)</li></ul><p><span style="line-height: 22.5px;">And now the top stories on Wednesday:</span></p><ol><li>The rally stayed intact. After a disappointing final hour of the day on Tuesday that saw the markets give up all of the day's gains and then some, stocks rocketed higher to end the day Wednesday, returning very nearly to where markets closed last Friday. At current levels, the S&amp;P 500 is now down less than 10% from its all-time highs, though each of the major indexes are still down for the year. </li><li>The newsflow wasn't as fast and furious on Wednesday as it had been earlier this week, but the biggest headline came from New York Fed president Bill Dudley - a voting member of the FOMC - who said in a briefing on the New York-area economy that raising rates currently looks "<a href="http://www.businessinsider.com/us-market-update-august-26-2015-8">less compelling</a>." But as <a href="https://twitter.com/BCAppelbaum/status/636571328921870336">The New York Times' Binyamin Appelbaum noted</a>, the full context of Dudley's comments don't look quite so pessimistic on whether the Fed will raise rates in September. Dudley added that new information could make raising rates "more compelling" by the time of the September 16-17 meeting. And so while many in the market may have made up their minds on what the Fed is going to do, the situation seems highly uncertain. </li><li>On the economic data front, <a href="http://www.businessinsider.com/durable-goods-orders-august-26-2015-8">durable goods orders for the month of July</a> came in better than expected, with orders rising 2% against the prior month and 2.2% on a "core" basis, which excludes defense orders and airplanes. In a note to clients following the report, Ian Shepherdson at Pantheon Macro said the "core" figure was the report's best news, adding that, "This is consistent with our view that the drop in equipment spending in the oil sector is now over, and that the rising underlying trend in non-oil spending is now becoming the dominant force again."</li><li>And while the volatility in the stock market has taken center stage, the underlying activity in the economy still appears robust. Or at least solid. <a href="http://www.businessinsider.com/us-economy-still-in-good-shape-2015-8">Business Insider's Bob Bryan rounded up</a> a number of comments from economists on Wall Street, who almost uniformly asserted that the theme of a steadily, but not spectacularly, improving US economy remains intact. </li><li>In individual stock news, one of the biggest merger proposals of the year blew up when agricultural giant <a href="http://www.businessinsider.com/one-of-the-biggest-potential-ma-deals-of-the-year-just-fell-apart-2015-8">Monsanto revealed</a> that it would drop its pursuit of crop-protection product maker Syngenta. The news sent shares of Monsanto up about 8% while US-listed ADRs of Syngenta fell 13%. A potential tie-up between the two companies would have been valued at around $45 billion. </li><li>And while it seems like old news by the US close, keep an eye on China's market open on Wednesday night. In Wednesday's overnight session intervention from Chinese authorities was not enough to stop the Shanghai Composite from having a wild ride, with the index <a href="http://www.businessinsider.com/here-comes-the-china-market-open-2015-8">eventually closing in the red</a> for the third straight day this week. The Shanghai Composite is now down 43.5% from its peak and its gain over the last year has been trimmed to just 33% after the index had more than doubled. </li></ol><p><strong><span style="line-height: 22.5px;">Don't Miss: <a href="http://www.businessinsider.com/sp-500-valuation-back-to-normal-2015-8">One good thing came from the stock market rout »</a></span></strong></p>    <div class="margin-top">        <h3>NOW WATCH: <a href="http://www.businessinsider.com/global-market-meltdown-stocks-oil-2015-8">RED EVERYWHERE: It's a global market meltdown</a></h3>        <div>            <div>        <div class="ooyala-video-player" data-video-autoplay="false" data-video-id="F3NTU1dzpxuF4acJ9B_9g5mwKWDZ5O4E" data-player-variable="ooyalapopvideo" id="ooyalaplayer_popvideo" style="width:1280px;height:720px"></div>        </div>        </div>            </div>

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<p class="p1"><div class="KonaFilter image-container"><div class="image"><p class="source"><span><a href="http://antiquestocks.stores.yahoo.net/pinksheets.html">AntiqueStocks</a></span></p><p class="caption">Pink Sheets printed in 1984 by the National Quotation Bureau, listing all the over-the-counter stocks and their market makers, along with prices. </p></div><p></p></div></p>
<p class="p1">July 2014 may go down as a defining month of this bull market, since it brought us the overnight sensation known as <a href="http://www.businessinsider.com/s?q=cynk">Cynk</a>, an internet penny stock that had been floating under the radar until it got pumped up more than 24,000%, then just as soon suspended by the SEC. </p>
<p class="p1">How did this happen? </p>
<p class="p1">Cynk was traded on OTCMarkets, a 101-year-old company now headquartered in Soho. It is the 21st century iteration of the company that invented pink sheets, the National Quotation Bureau. Pink sheets were where your broker use to call other brokers for trades in companies that had publicly available shares but which weren't listed on a major exchange. You can see what they used to look like above. </p>
<p class="p1">Some of these would have been shares in large overseas companies that for whatever reason weren't interested in U.S. liquidity. <span class="s1">Many more were smaller U.S. firms that couldn't afford it. And some would have been Cynk-like.</span></p>
<p class="p2">That is mostly how the more-than-18,000 securities OTCM quotes breaks down. A third of its total listings, and two-thirds of its dollar volume, are in international ADRs (American Depository Receipts) like Roche, Heineken, and Walmart de Mexico. The rest are smaller companies that were looking for a scaled-down version of going public.  </p>
<p class="p2">Things can get a little dicey in that second group. So OTCM divides its securities into multiple sections depending on a firm's level of reporting and verifiable information, ranging from companies - 354 in total - that are listed as totally current in their disclosure and that have received third party advisory, to another set - numbering 8,656 - that the broker-dealers OTCM pulls quotes from are no longer willing or able to publicly quote due to the absence of investor interest, company information availability or regulatory compliance. 9,543 are somewhere in between.</p>

<p> </p>
<p> </p>
<p class="p1">Despite their variable reporting, most are legitimate. A company called EME Reorganization Trust saw volume this weekend of 115 million shares, which are worth $0.13. That might sound sketchy, but they're simply a corporate entity created after two big energy companies merged. Or Pleasant Kids, which sells children's water bottles. Its shares are worth $0.0009. Last year it entered into a share-exchange agreement with New York Bagel Deli where Pleasant gained all of NYBD's capital but got stuck with its old ticker symbol. The company has been consistently filing reports with the SEC since 2008, though it <a href="http://www.otcmarkets.com/edgar/GetFilingHtml?FilingID=9994825"><span class="s2">continues to operate at a major loss</span></a>.  </p>
<p class="p1">But some aren't right. OTCM keeps a list of "Caveat Emptor" securities that the firm, or one of its feeder brokers, has flagged as being outside the bounds of any modicum of reporting standard. </p>
<p class="p1">There are more than 1,200 of them. They come with a skull-and-crossbones.</p>
<p class="p1"><div class="KonaFilter image-container click-to-enlarge"><div class="image"><a title_source="OTCM" title_caption="" Caveat="" Emptor="" stocks="" class="zoomin" href="https://static-ssl.businessinsider.com/image/53d13b316bb3f73b1d5d7583-960/screen%20shot%202014-07-24%20at%2012.57.03%20pm.png"><span class="sprites click-to-enlarge-icon" title="Click to enlarge"></span></a><p class="source"><span><a href="http://www.otcmarkets.com/research/stock-screener">OTCM</a></span></p><p class="caption">"Caveat Emptor" stocks</p></div><p></p></div></p>
<p class="p2">OTCM CEO Cromwell Coulson explained the role his marketplace plays, despite the presence of these stocks, and those that, while they haven't been blacklisted, still trade at ultra-low levels. Stock pickers he said, can still derive a lot of value from sniffing out a small firm with great potential.</p>
<p class="p2"><div class="KonaFilter image-container float_right" style="width:364px"><div class="image"><p class="source"><span>OTCM</span></p><p class="caption">Cromwell Coulson</p></div><p></p></div>"Small company markets are not about the weeds, they're about what grows out of them," he told us at OTCM's headquarters. "They're about companies giving information so that someone intelligent can go allocate capital."  </p>
<p class="p1">He also explained why these kinds of companies even bother going public. </p>
<p class="p3"><span class="s3"> </span>"There are a lot <span>complex regulations you have to pay for to be on an exchange that smaller</span> and global companies don't need," he said. "Major exchanges work really well for the Cokes and Pepsis, for the S&amp;P500, but they're very costly and complex for the smallest companies."</p>
<p class="p3"><span>As an </span><span>SEC registered</span><span> alternative trading system </span><span>for regulated broker-dealers to provide investors the best price all types of securities, OTCM does not have the broader regulatory authority of an exchange or a Self-Regulatory Organization ("SRO")</span><span>.  Only FINRA or the SEC can legally halt </span><span>all brokers from trading</span><span> in a public company's shares.  </span><span>OTCM has a system of tiered marketplaces - OTCQX, OTCQB and OTC Pink - that incentivize disclosure and categorize companies based on the quality of their operations and availability of information so investors and brokers have information to make good choices and regulators can bring strong consequences.</span></p>
<p class="p2">As an alternative trading system, OTCM is not obligated to vet any of the stocks they quote. And only FINRA and the SEC can legally halt all brokers from trading in a company's shares. </p>
<p class="p1">In Cynk's case, OTCM flagged the stock with a "caveat emptor" <span>skull and crossbones symbol</span> on July 9, after Cynk's shares had more than doubled. Cynk shares thus traded another day, rising as high as $21.50; they'd  traded as low as $0.08 last year. The SEC issued its halt order July 11.</p>
<p class="p1">"I Tweeted on Thursday saying it was not a question of if the SEC halts this, it's when," Coulson said. "It was going to trade at some ludicrous level for some amount of time - which was a day - the SEC was going to halt it, and everyone involved in that stock are going wish they weren't involved." </p>
<p class="p1">Yet some people find the urge to trade companies like Cynk irresistible. </p>
<p class="p1">"If you point to the people who were buying Cynk and told them, You really should buy [a community bank], this great bank that pays dividends, that's close to you, you might even be a depositor there - they'd tell you that's boring." </p>
<p class="p1">Year-to-date, OTCM has seen slightly above average overall dollar volumes, and well above average flows into stocks worth $5 or less, though as a percentage of YTD flows they're relatively low. Coulson does not believe there's not much to extrapolate about the broader state of markets from what happened with Cynk. </p>
<p class="p1"><div class="KonaFilter image-container display-table"><div><div class="image"><p class="source"><span>OTCM</span></p></div><p></p></div></div></p>
<p class="p1"><div class="KonaFilter image-container display-table"><div><div class="image"><p class="source"><span>OTCM</span></p></div><p></p></div></div></p>
<p class="p1">He does think it's a sign greater baseline transparency is needed among listing securities, <a href="http://financialservices.house.gov/uploadedfiles/hhrg-113-ba16-wstate-ccoulson-20130612.pdf"><span class="s2">and has testified to Congress on this point recently.</span></a><span class="s1"> <span>SEC reporting companies on its OTCQB venture-stage marketplace.</span> They already have <a href="http://www.otcmarkets.com/research/prohibited-attorney"><span class="s2">a list</span></a> of banned lawyers. </span></p>
<p class="p1">"With SEC reporting, you have complete disclosure about a company's finances, but you don't have full disclosure about the people - who their advisors and associates and affiliates are, and the number of shares outstanding. <span>Our new standards for OTCQB will help change that."</span>"</p>
<p class="p1">But as long as there are free markets, there are going to be people trying to game stocks like Cynk. </p>
<p class="p1">"There's a subset of investors who don't actually want to invest, who just want prove that they're better than other people," Coulson said. "They want to prove they can trade better, and speculate more, and I don't<span class="s1"> think you can get rid of them."</span></p>

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