Market Digest \u2013 Week Ending 9\/30\r\n\r\nIt was a choppy week for markets. Both foreign and domestic stocks initially fell on worries surrounding Deutsche Bank\u2019s financial health, but regained ground mid-week. They dipped again on Thursday when certain clients of Deutsche Bank started to reduce exposure, only to rebound the next day when news surfaced of a $5.4 billion settlement between the German lender and US Department of Justice. US bonds and the dollar were relatively flat, while gold was slightly down.\r\n\r\nWeekly Returns:\r\n\r\nS&P 500: 2,168 (+0.2%)\r\nFTSE All-World ex-US: (-0.1%)\r\nUS 10 Year Treasury Yield: 1.59% (-0.03%)\r\nGold: $1,318 (-1.4%)\r\nUSD\/EUR: $1.124 (+0.1%)\r\n\r\nMajor Events: \r\n\r\n\u2022 Monday \u2013 Hillary Clinton and Donald Trump faced off, setting the record for the most watched presidential debate ever with 84 million viewers.\r\n\u2022 Monday \u2013 August single family home sales fell 7.6% from a month earlier, slightly beating consensus estimates.\r\n\u2022 Wednesday \u2013 US durable goods orders were flat in August, with weakness coming from energy firms pulling back on investment.\r\n\u2022 Thursday \u2013 News surfaced that certain hedge funds and clients were reducing their exposure to Deutsche Bank over liquidity concerns.\r\n\u2022 Thursday \u2013 US second quarter GDP was revised up to 1.4% growth.\r\n\u2022 Friday \u2013 Rumors circulated that Deutsche Bank was nearing a $5.4 billion settlement with the US Department of Justice.\r\n\r\nOur take: \r\n\r\nIt\u2019s been a nasty year for European banks as they continue to face persistently weak economic growth. For one bank in particular, conditions have worsened. Deutsche Bank made headlines mid-September when the US Department of Justice proposed a $14 billion fine surrounding its selling of mortgage securities. Despite management saying it has no intent of settling anywhere near this figure, the news sent shares lower on fears it could impact the firm\u2019s liquidity.\r\n\r\nVolatility was further compounded on Thursday when news surfaced of several hedge funds and clients pulling funds and reducing trading activity with the bank. It is this second piece of news that\u2019s particularly troubling. When it comes to financial institutions, the name of the game is confidence and trust. It becomes a very slippery slope when that confidence is shaken. We saw what can happen first hand in the financial crisis of 2008. It starts as rumors of insolvency and eventually becomes a self-fulfilling prophecy as more and more customers distance themselves, until finally the bank runs out of money.\r\n\r\nTo be sure, that\u2019s not exactly what is happening with Deutsche Bank. At this point, the number of clients reducing exposure appears limited. And despite Chancellor Merkel\u2019s somewhat hardline stance on bailouts, it\u2019s hard to imagine a scenario where the German government allows Deutsche Bank to fail. The impact of such an event to the overall banking system would be too severe.\r\n\r\nMoreover, news surfaced Friday that the company is nearing a $5.4 billion settlement with the US Department of Justice, sending shares sharply higher. If confirmed, this reduced amount would indeed be a welcomed development. It won\u2019t, however, solve all of Deutsche Bank\u2019s problems. It is still a large fine that will materially impact capital, and the European banking environment remains challenging. It will continue to be an uphill battle for Germany\u2019s largest lender.