Tit for Tat?

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Am I the only one who has noted the suspiciously short amount of time that elapsed between the European Union asking Apple (NASDAQ:AAPL) to pay $14.5 billion in back taxes (refer to my blog post: Rotten Apple? Think Again), and the Department of Justice asking Deutsche Bank (NYSE: DB) to pay a fine of $14 billion.

In a very short period of time, the US is fining a major European bank an amount that is too close to be a coincidence to that which the European Union is asking a major American player to pay.There are differences of course, Apple is one of the world’s largest corporations, it generates huge profits, and has obscene amounts of cash in their balance sheet; while Deutsche Bank still hasn’t fully recovered from the aftermath of the sub-prime crisis, has – for many different reasons – had to pay several fines levied by different governments around the world, and is not in the greatest shape of its nearly century-and-half long life.

Apple’s market cap is around $600 billion, where the fine would represent approximately 2.5%, while the fine on the German lender would represent north of 78% of its market cap, and around 20% of its shareholders’ equity.  While Apple could  pay its fine and expense it as petty cash, Deutsche Bank would need to hit the capital markets to raise funds.  It is very unlikely that investors will be willing to give them money just to pay a fine.

The other option is the dreaded bail-out.  The average German citizen is sick of Germany bailing-out everybody and their cousin… from banks during the sub-prime crisis, to countries in the sovereign crisis that followed.  It would be very hard for them to digest a further rescue of yet another bank, even if it is the German Bank.  Germany’s Chancellor Angela Merkel, who’s party has lost the interim elections at several German states, is already fighting for her political life, and with the general election looming, any decision for or against a bail-out will be burnt into the voters’ memories in 2017.

Across the Atlantic, President Obama, with one foot out of the white house, is unlikely to sit by and watch one of his closes allies go down the tubes.  So it is very likely that a deal will be reached.

When said deal on Deutsche Bank’s fine is reached over the next few months, keep an eye out for any similar deal that might take place around Apple…. Just a hunch.

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