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Deutsche Bank: Why we should all be deeply concerned

The current chatter around Deutsche Bank (LSE: 0H7D.L - news) is bringing back nasty memories of the kind of speculation that hit Royal Bank of Scotland (LSE: RBS.L - news) as the financial crisis took hold in 2008.

Deutsche's shares are down some 51% since the beginning of the year - with speculation mounting in recent days about a possible government bailout despite repeated denials from the German government and the bank itself.

Yet the problems engulfing Deutsche have the potential to blow up into the eurozone's biggest calamity since the sovereign debt crisis in the single currency zone in 2012.

For Deutsche is not just the biggest lender in the eurozone's largest and most important economy. It was singled out by the International Monetary Fund only three months ago as "the most important net contributor to systemic risks", in other words, an institution that, were it to come a cropper, could threaten global financial stability.

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That, alone, makes Deutsche Bank's woes a big deal. But they also have wider societal repercussions in Germany. For this is - or was - seen by the German public as a copper-bottomed institution, trusted by staff and customers, a pillar of corporate Germany. Its loans have for decades bankrolled the country's mighty export machine.

That its financial wellbeing and overall reputation is now under scrutiny is just as embarrassing for Deutschland AG as the recent emissions scandal that humiliated the carmaker Volkswagen (LSE: 0P6N.L - news) .

So how did Deutsche get into this mess? Mainly, past misconduct. The bank faces a number of regulatory investigations, notably the alleged mis-selling of mortgage-backed securities ahead of the financial crisis, which the US Department of Justice wishes to punish with a $14bn fine - not far off Deutsche's entire stock market value at present.

That is on top of the billions of euros it has already been fined for other past misdemeanours, including Libor-rigging and sanctions-busting.

Meanwhile, John Cryan, the Yorkshireman parachuted in as chief executive just over a year ago, is already fighting fires on several fronts, including a drop in profits from trading in bonds and derivatives and the wider hit to profitability caused by negative interest rates in the eurozone.

He is also having to restructure the bank following years of over-expansion, pulling out of peripheral activities, with 9,000 jobs already gone and more cuts expected.

Many Germans will say it is no coincidence that, in the case of both VW and Deutsche Bank, it is the US legal system that has contributed to the woes of two of the country's corporate titans just as the EU has decided to take on some of America's biggest corporate players, like Apple (NasdaqGS: AAPL - news) , over their tax arrangements.

But Deutsche's woes come at an awful time for Angela Merkel, the German Chancellor, who faces a general election next year just as her poll ratings have collapsed due to the refugee crisis. Handing taxpayers' money to bankers is something she would rather not be having to contemplate right now.

Germany has spent the last six years arguing forcefully against state bailouts of banks in Eurozone countries like Greece and Cyprus. If it is forced to rescue Deutsche Bank, there will be a wave of demands for bailouts elsewhere in the Eurozone, in particular, from Italy, whose banking sector is in a parlous state.