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Deutsche Bank and the Financial Meltdown

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Joseph Goebbels, Hitler’s pro­pa­ganda chief, once said: ‘In 50 years’ time nobody will think of nation states.’ 

COMMENT: In the wake of the shock waves and anxiety coursing through the investment and business community after the “troika’s” capricious handling of the Cyprus banking crisis, it is important to understand that German banks are anything but blameless in the European financial crisis.

Although the vast majority of Germans aren’t aware of this (due to the selective coverage of the eurozone crisis by their media), German banks are two and a half times as leveraged as their U.S. and British counterparts. German banks have been said to have “poured the drinks” for the party that troubled Southern European economies held.

In fact, the bailouts are being used to shore up leveraged German banks.

Examination of the practices of Deutsche Bank leading up to, and during, the financial meltdown are instructive.

Inextricably linked with the Underground Reich, Deutsche Bank was the financial institution of choice for Reichsleiter Martin Bormann’s personal services. (Supposedly killed in the closing days of the war, Bormann not only escaped but presided over the flight capital program that made the Federal Republic the economic power that it is today. Germany continues to cling to the fiction that Bormann is dead, much as the United States clings fervently to its national political mythology–Lee Harvard Oswald was a lone nut who killed President Kennedy and other convenient, institutionalized fictions.)

In assessing the German claim to achieving banking superiority, a number of things should be borne in mind with regard to Deutsche Bank:

  • Represented as financially healthy by its management, Deutsche Bank was actually deeply compromised by its portfolio of bad investments made during the lead up to the Wall Street collapse. This was deliberately hidden by the bank’s chief Josef Ackermann.  
  • Deutsche Bank had to borrow billions of dollars from the U.S. federal reserve in 2007 in order remain solvent.
  • In addition, 12 billion dollars went from the Federal Reserve to Deutshe Bank as part of the AIG bailout.
  • The U.S. government filed suit against Deutsche Bank, claiming that it deliberately “gamed” the mortgage market.
  • The enormity and significance of Deutsche Bank’s indebtedness can be measured against the volume of the bad trades at J.P. Morgan. Here, we quote the vigilant “Pterrafractyl”: To try and put the scope of the charges against Deutsche Bank into rel­a­tive con­text, con­sider JP Morgan’s “Lon­don Whale” blun­der of last year. That now single-digit multi­bil­lion dol­lar loss by a bank as big as JP Mor­gan (now $6.2 bil­lion) was con­sid­ered a REALLY BIG deal. And this was a $6.2 bil­lion loss in a $150+ bil­lion fund. And this loss took place when there was appar­ently asset price manip­u­la­tion tak­ing place too. Com­pare that to the new Deutsche Bank inves­ti­ga­tion, where we have $12 bil­lion in losses that were allegedly avoided by mis­pric­ing ~$130 bil­lion in deriv­a­tives. So if a $6 bil­lion loss was a really big deal for JP Mor­gan, this lat­est case has to be con­sid­ered a really, really big loss that was get­ting cov­ered by Deutsche Bank. Amus­ingly, $12 bil­lion is also the amount Deutsche Bank received from the US bailout of AIG. Fig­ures.

As the self-righteous pronouncements about Cyprus, Greece and the other troubled eurozone countries issue forth from German politicians and bankers, it is important to remember how the Federal Republic’s largest bank behaved.

One should remember that the crisis benefits Germany, with a weak euro stimulating German exports and the financial instability in Europe driving capital into German financial instruments and institutions because of their perceived safety.

Martin Bormann: Nazi in Exile by Paul Manning; Lyle Stuart [HC]; Copyright Paul Manning 1981; ISBN-0-8184-0309; p. 205.

EXCERPT: . . . The [FBI] file revealed that he had been bank­ing under his own name from his office in Ger­many in Deutsche Bank of Buenos Aires since 1941; that he held one joint account with the Argen­tin­ian dic­ta­tor Juan Peron, and on August 4, 5 and 14, 1967, had writ­ten checks on demand accounts in first National City Bank (Over­seas Divi­sion) of New York, The Chase Man­hat­tan Bank, and Man­u­fac­tur­ers Hanover Trust Co., all cleared through Deutsche Bank of Buenos Aires. . . .

German Banking Superiority Is A Lie (2); Germany Watch; 12/6/2012.

EXCERPT: Germany’s attempts to manage the financial crisis in Europe to their benefit, by regulating every single financial product/bank/action, and claiming their banking superiority as a reason and example, is looking more and more like a sick joke…

Josef Ackermann was bullish. Even as the global financial industry was reeling, the Deutsche Bank chief executive began 2009 by boldly declaring that his bank had plenty of capital and would return to profit that year.

In an investor call that February, Mr Ackermann said he would provide “as much clarity as we can on all the positions” to refute the suggestion that banks such as his had “hidden losses, and one day that will pop up, and then … we need more capital and the only way to go – to ask for capital – is to see the governments”.

During the public relations campaign waged by Deutsche, its share price recovered from €16 in January to €39 at the end of April 2009, when it reported pre-tax profit of €1.8bn for the first quarter.

But three of the bank’s former employees say the show of strength was based on a fiction. In a series of complaints to US regulators, two risk managers and one trader have told officials that Deutsche had in effect hidden billions of dollars of losses.

“By doing so, the bank was able to maintain its carefully crafted image that it was weathering the crisis better than its competitors, many of which required government bailouts and experienced significant deterioration in their stock prices,” says Jordan Thomas, a former US Securities and Exchange Commission enforcement lawyer, who represents Eric Ben-Artzi, one of the complainants.

Also unknown to the public until now is the assistance – entirely proper – provided to Deutsche by billionaire investor Warren Buffett’s Berkshire Hathaway group.

In complaints to the SEC made in 2010-11, the employees allege that the main source of overstatement was in a $130 bn portfolio of “leveraged super senior” trades.

In 2005 these were seen as the next big thing in the rapidly evolving world of credit derivatives. They were designed to behave like the most senior tranche of a typical collateralised debt obligation, where assets such as mortgages or credit default swaps are pooled to give investors varying degrees of risk exposure.

Deutsche became the biggest operator in this market, which involved banks buying insurance against the possibility of default by some of the safest companies.

Working with Deutsche, investors – many of them Canadian pension funds in search of yield – sold insurance to the bank, posting a small amount of collateral. In return, they received a stream of income from Deutsche as an insurance premium. On a typical deal with a notional value of $1bn, the investors would post just $100m in collateral – a fraction of what would normally be posted by an investor writing an insurance contract.

The small amount of collateral did not matter, the product’s creators said. The chance of several safe companies, such as Dow Chemical or Walmart, all going bankrupt at the same time was infinitesimally small. It might require a nuclear war. The chance of the investors having to pay out on the insurance appeared impossibly remote. The chance of their collateral being used up was inconsequential.

Having bought protection from Canadian investors, Deutsche went out and sold protection to other investors in the US via the benchmark credit index known as CDX. It would earn a spread of a few basis points between the two positions, perhaps 0.03 per cent.

That does not sound like much. But as it amassed ever greater positions, eventually representing 65 per cent of all leveraged super senior trades, it accumulated a portfolio of $130bn in notional value. Over the seven-year life of the trade, the few basis points were worth about $270m.

There was a problem, though, which traders either did not foresee or did not care about when they booked hundreds of millions of dollars of upfront profits. A severe financial shock, well short of nuclear warfare, could also produce disastrous results. . . .

. . . . “If Lehman Brothers didn’t have to mark its books for six months it might still be in business,” says one of the men. “And if Deutsche had marked its books it might have been in the same position as Lehman.”

“The Bank Run We Knew So Lit­tle About” by Gretchen Mor­gen­son; The New York Times; 4/2/2011.

EXCERPT: In August 2007, as world finan­cial mar­kets were seiz­ing up, domes­tic and for­eign banks began lin­ing up for cash from the Fed­eral Reserve Bank of New York.

That Aug. 20, Com­merzbank of Ger­many bor­rowed $350 mil­lion at the Fed’s dis­count win­dow. Two days later, Cit­i­group, JPMor­gan Chase, Bank of Amer­ica and the Wachovia Cor­po­ra­tion each received $500 mil­lion. As col­lat­eral for all these loans, the banks put up a total of $213 bil­lion in asset-backed secu­ri­ties, com­mer­cial loans and res­i­den­tial mort­gages, includ­ing sec­ond liens.

Thus began the bank run that set off the finan­cial cri­sis of 2008. But unlike other bank runs, this one was invis­i­ble to most Americans.

Until last week, that is, when the Fed pulled back the cur­tain. Respond­ing to a court rul­ing, it made pub­lic thou­sands of pages of con­fi­den­tial lend­ing doc­u­ments from the crisis.

The data dump arose from a law­suit ini­ti­ated by Mark Pittman, a reporter at Bloomberg News, who died in Novem­ber 2009. Upon receiv­ing his request for details on the cen­tral bank’s lend­ing, the Fed argued that the pub­lic had no right to know. The courts disagreed.

The Fed doc­u­ments, like much of the infor­ma­tion about the cri­sis that has been pried out of reluc­tant gov­ern­ment agen­cies, reveal what was going on behind the scenes as the finan­cial storm gath­ered. For instance, they show how dire the bank­ing cri­sis was becom­ing dur­ing the sum­mer of 2007. Wash­ing­ton pol­icy mak­ers, mean­while, were say­ing that the sub­prime cri­sis would sub­side with lit­tle impact on the broad econ­omy and that world mar­kets were highly liquid. . . .

. . . . Within about a month’s time, how­ever, for­eign banks began throng­ing to the Fed’s dis­count win­dow — its mech­a­nism for short-term lend­ing to banks. Over four days in late August and early Sep­tem­ber, for­eign insti­tu­tions, through their New York branches, received a total of almost $1.7 bil­lion in Fed loans.

As the global run pro­gressed, banks increased their bor­row­ings, the doc­u­ments show. For exam­ple, on Sept. 12, 2007, Citibank drove up to the New York Fed’s win­dow. It extracted $3.375 bil­lion of cash in exchange for $23 bil­lion worth of assets, includ­ing com­mer­cial mortgage-backed secu­ri­ties, res­i­den­tial mort­gages and com­mer­cial loans. . . .

. . . . Per­haps the biggest rev­e­la­tion in the Fed doc­u­ments is the extent to which the cen­tral bank was will­ing to lend to for­eign insti­tu­tions. On Nov. 8, 2007, Deutsche Bank took out a $2.4 bil­lion overnight loan secured by $4 bil­lion in col­lat­eral. And on Dec. 5, 2007, Calyon of France bor­rowed $2 bil­lion, pro­vid­ing $16 bil­lion in collateral. . . .

“A.I.G. Lists Banks It Paid With U.S. Bailout Funds” by Mary Williams Walsh; The New York Times; 3/16/2013.

EXCERPT: Amid rising pressure from Congress and taxpayers, the American International Group on Sunday released the names of dozens of financial institutions that benefited from the Federal Reserve’s decision last fall to save the giant insurer from collapse with a huge rescue loan.

Financial companies that received multibillion-dollar payments owed by A.I.G. include Goldman Sachs ($12.9 billion), Merrill Lynch ($6.8 billion), Bank of America ($5.2 billion), Citigroup ($2.3 billion) and Wachovia ($1.5 billion).

Big foreign banks also received large sums from the rescue, including Société Générale of France and Deutsche Bank of Germany, which each received nearly $12 billion; Barclays of Britain ($8.5 billion); and UBS of Switzerland ($5 billion). . . .

“U.S. Sues Deutsche Bank over Mortgage Approvals” by Nathaniel Popper; Los Angeles Times; 5/3/2011.

EXCERPT: The federal government is seeking more than $1 billion from Deutsche Bank in a fraud lawsuit that could open a new front in a campaign to punish companies that churned out the low-quality mortgages blamed for sparking the financial crisis.

The lawsuit filed Tuesday in Manhattan federal court says the German financial giant’s New York-based home lender, MortgageIT, recklessly approved 39,000 mortgages for government insurance from 1999 to 2009 “in blatant disregard” of whether borrowers could make the required monthly payments.

The lender repeatedly lied to the government about the quality of the mortgages and about efforts supposedly undertaken to fix the problems, according to the suit.

“Prudence was trumped by profits and good faith was trumped by good fees,” U.S. Atty. Preet Bharara said at news conference announcing the litigation.

The Federal Housing Administration has paid $386 million in insurance claims on bad MortgageIT loans, a figure the agency projects will rise to about $1.3 billion. The government is asking the court to order Deutsche Bank to pay three times the FHA’s eventual losses on the loans. The suit also seeks punitive damages. . . .


15 comments for “Deutsche Bank and the Financial Meltdown”

  1. To try and put the scope of the charges against Deutsche Bank into relative context, consider JP Morgan’s “London Whale” blunder of last year. That now single-digit multibillion dollar loss by a bank as big as JP Morgan (now $6.2 billion) was considered a REALLY BIG deal. And this was a $6.2 billion loss in a $150+ billion fund. And this loss took place when there was apparently asset price manipulation taking place too. Compare that to the new Deutsche Bank investigation, where we have $12 billion in losses that were allegedly avoided by mispricing ~$130 billion in derivatives. So if a $6 billion loss was a really big deal for JP Morgan, this latest case has to be considered a really really big loss that was getting covered by Deutsche Bank.

    Amusingly, $12 billion is also the amount Deutsche Bank received from the US bailout of AIG. Figures.

    Posted by Pterrafractyl | April 9, 2013, 11:09 pm
  2. Fun with leverage: As part of new bank EU banking regulations, Deutsche Bank – the second most leveraged bank in Europe right now – needs to either raise 12 billion euros in new capital or dump 400+ billion euros in assets (which reflects the bank’s 36 to 1 asset to equity ratio). So will it be 12 billion euros in new capital or dumping 400+ billion euros in borrowed assets? Bye bye assets:

    Deutsche Bank to Reduce Assets as Leverage Rules Tighten
    By Nicholas Comfort – Jul 6, 2013 8:28 AM CT

    Deutsche Bank AG (DBK), continental Europe’s biggest bank, will reduce its balance sheet as regulators implement stricter rules on the relation of equity to total assets, Chief Financial Officer Stefan Krause said.

    Deutsche Bank is “well prepared” to meet a European Union leverage target under higher capital requirements, Krause said in an interview with Boersen-Zeitung published today. “We have to further reduce our balance sheet” and set aside profit, he said in the interview with the German newspaper. Klaus Winker, a spokesman for Frankfurt-based company, confirmed the comments when contacted by Bloomberg News by phone today.

    Regulators are increasingly looking at leverage, in addition to measures based on risk weightings assigned to different assets, to gauge banks’ financial strength. The rules, which are at various stages of development in different countries, risk hurting investors as lenders will have to reduce assets or raise capital to comply.

    Krause said that while the leverage ratio can serve in addition to capital requirements based on perceived risk, focusing on the former would push banks to load up on risk and reduce lending.

    Deutsche Bank’s equity accounted for 2.8 percent of its assets at the end of March, the lowest value of Europe’s major banks after France’s Credit Agricole SA (ACA), data compiled by Bloomberg Industries show.

    The German lender needs to raise 12.3 billion euros ($15.8 billion) in capital or reduce assets by 409 billion euros to comply with a proposal on leverage by the Basel Committee on Banking Supervision, analysts at JPMorgan Chase & Co. (JPM) said in a July 4 note to clients.

    Deutsche Bank wants to take “substantial steps” in the next year or two on selling assets from a 90 billion-euro portfolio that isn’t central to its business, Krause said. The company will have to reduce liquidity, which counts toward assets, and could pursue other measures, the CFO said.


    Posted by Pterrafractyl | July 18, 2013, 8:28 am
  3. There’s an important reminder at the end of this article about why profit-maximization and systemic robustness are fundamentally at odds:

    The New York Times
    Deutsche Bank Resists Pressure to Scale Back Its Global Ambition
    By JACK EWING, July 2, 2013, 3:00 pm

    In many ways, Deutsche Bank operates in two different realms.

    Deutsche Bank’s blocklong headquarters in London’s financial district oozes the wealth and sophistication one would expect of a global investment bank competing with the likes of Citigroup, Goldman Sachs and JPMorgan Chase. The modern eight-story building even has its own full-time curator, who has lined the walls with works by contemporary artists like Damien Hirst and David Hockney.

    Regulators are leaning on all big banks with measures like bonus caps, transaction taxes and higher capital requirements. But Deutsche Bank is under particular scrutiny because of a perception — considered grossly unfair by bank management — that it is too thinly cushioned against losses if there were another financial crisis.

    The regulatory pressure comes in addition to a host of other challenges, including a long list of official investigations and lawsuits, most linked to investment banking, that are likely to be a burden on Deutsche Bank profits, and its reputation.

    American regulators in particular seem to have set the bank up as a straw man that could collapse in the wake of another financial crisis. In what could be interpreted as a warning of regulation, Thomas M. Hoenig, vice chairman of the Federal Deposit Insurance Corporation, told Reuters last month that Deutsche Bank was “horribly undercapitalized.”

    The unusually harsh statement came only weeks after Mr. Jain had assured shareholders that Deutsche Bank was one of the best-capitalized banks in the world. Mr. Jain was using a different measure of capital than Mr. Hoenig did, reflecting an intense debate in policy-making circles about the right way to measure bank risk.

    European rivals like UBS in Switzerland or the Royal Bank of Scotland in Britain have already reduced the size of their investment banks under pressure from government regulators who want to make sure they never again have to ask taxpayers for a bailout. Others like UniCredit in Italy have been hobbled by the euro zone financial crisis.Deutsche Bank, however, seems determined to keep its two-track focus.

    Since taking over a little more than a year ago, they have increased the bank’s capital, including raising 2 billion euros, or $2.6 billion, in a sale of new shares in April. They have vowed to instill a sense of ethics that they acknowledge was missing in the years before the financial crisis began in 2008.

    Deutsche Bank is one of numerous banks suspected by American and British authorities of manipulating benchmarks used to set interest rates on trillions of dollars in loans. Deutsche Bank has said that no senior managers were involved in any wrongdoing. Still, that and other legal proceedings have prompted the bank to set aside 2.4 billion euros to cover potential settlements or judgments.

    On Monday, Deutsche Bank was among 13 banks accused by European antitrust regulators of colluding to block competition in the market for credit derivatives. A bank spokesman declined to comment on the complaint by the European Commission.

    Mr. Jain, a native of India who earned a master’s degree in business at the University of Massachusetts, has worked hard to shift the focus from problems of the past to what he insists is a bright future for Deutsche Bank deploying German savings in the global economy. German deposits at Deutsche Bank total more than 300 billion euros, and are a crucial source of financing.

    Mr. Jain, who declined a request for an interview, has won praise from some investors who have criticized Deutsche Bank over what they perceived as lax ethical standards and thin capital buffers.

    “It’s going in the right direction,” said Hans-Christoph Hirt, director of Hermes Equity Ownership Services, which represents the interests of pension funds and other large investors. “They are doing a lot of very sensible things in the areas where we criticized them.”

    Some regulators also remain doubtful whether recent moves by Deutsche Bank to increase its capital are sufficient. With its enormous portfolio of derivatives, valued at well over $1 trillion, Deutsche Bank is clearly too big to fail. Any problems at the bank could reverberate around the global financial system.

    The Federal Reserve is seeking a new rule requiring foreign banks to hold capital in the United States in proportion to their activities in the country, a regulation that would hit Deutsche Bank particularly hard because of its big presence on Wall Street. Deutsche Bank has resisted efforts to set aside its capital by country, preferring instead to keep it under one global umbrella.

    By one commonly used measure, Deutsche Bank is indeed among the better-capitalized banks in the world. Its ratio of capital to assets, or total money at risk, is 9.6 percent, up from just 5.9 percent when Mr. Jain and Mr. Fitschen took over the bank in 2012 from Josef Ackermann.

    Some banking experts, however, question the way Deutsche Bank and other institutions have calculated their risk, using methodology that allows them discretion in estimating the chances that a loan or other asset could sour.

    Among regulators, academics and some analysts, there is growing sentiment that the use of so-called risk-weighted assets to calculate capital is fundamentally flawed. “This is like asking the poachers to be game wardens,” said Adrian Blundell-Wignall, a well-known financial markets expert at the Organization for Economic Cooperation and Development in Paris.

    Using another yardstick, known as the leverage ratio, Deutsche Bank still looks risky compared with its peers. According to estimates by James Chappell, an analyst at Berenberg Bank, a private bank in Hamburg, Deutsche Bank borrows $50 for every dollar of its own money that it lends or otherwise deploys in the market. It is Deutsche Bank’s leverage ratio that prompted Mr. Hoenig’s comments last month.

    Mr. Blundell-Wignall, citing O.E.C.D. research, said that banks’ ratio of borrowed money to its own equity should not exceed 20 to 1. Banks with more than that “are potential accidents waiting to happen,” he said. Most large American banks have less leverage, because of tougher regulations than in Europe.

    Deutsche Bank said in its first-quarter financial report that its ratio of borrowed money to capital was 36 to 1 at the end of March using European accounting standards. Using accounting methods more comparable to that used by American banks, the ratio was just 21 to 1, the bank said.

    Some analysts say that Deutsche Bank might be forced to scale back its ambitions. Mr. Chappell of Berenberg Bank estimated that the cost to Deutsche Bank of meeting new requirements on capital would consume four years’ worth of profits.

    “It can remain as a universal bank,” Mr. Chappell said, “but once they are properly capitalized, returns will be significantly lower.”

    Posted by Pterrafractyl | July 18, 2013, 8:59 am
  4. It looks like Germany financial regulators are going to be investigating Deutsche Bank’s habit of hiding hundreds of billions of euros in loans:

    Deutsche Bank Opaque Loans From Brazil to Italy Obscure Risk
    By Elisa Martinuzzi and Vernon Silver
    July 10, 2013

    Deutsche Bank AG (DBK), perennially among the top three in global credit markets, made billions of dollars of loans to banks worldwide since 2008 and accounted for them in a way that obscured their continuing risk to investors.

    Germany’s largest bank managed to lend to firms from Brazil to Italy while making the transactions disappear from its balance sheet, even though it still is owed the money, according to four people with knowledge of the practice and internal documents provided to Bloomberg News.

    Deals totaling 2.5 billion euros ($3.3 billion) involving Italy’s Banca Monte dei Paschi di Siena SpA and Banco do Brasil SA reveal a technique that obscured Deutsche Bank’s lending reach when it sent cash to the banks, the documents show. The company had talks about a similar loan to Dexia SA (DEXB) weeks before that firm was rescued, according to the documents, and it used the same accounting for other deals through 2011, two of the people with knowledge of the transactions said.

    “We should be very concerned about the opacity and complexity of these transactions,” said Joshua Rosner, an analyst at research firm Graham Fisher & Co. in New York who warned in early 2007 that securities linked to subprime loans posed risks to the economy.

    The loans are among 395.5 billion euros in assets that Deutsche Bank excludes from its balance sheet by offsetting them with equivalent liabilities, according to a person with direct knowledge of the practice. Deutsche Bank disclosed the amount for the first time in April under new international financial reporting standards. The total represents 19 percent of the company’s reported assets of 2.03 trillion euros.

    ‘Intended Spirit’

    Kathryn Hanes, a spokeswoman for Deutsche Bank, said the Frankfurt-based lender follows accounting rules “meticulously, conservatively and taking into account their intended spirit” and started reporting “these positions on a gross basis for even greater transparency.” She said the amount of any offset loans is “immaterial to our balance sheet and key ratios.”

    Thomas Blees, a spokesman in Berlin for KPMG, which has audited the lender since 1990, declined to comment.

    Deutsche Bank’s accounting for the loans, described in documents for some deals as “enhanced” repos, reduces reported lending as co-Chief Executive Officers Anshu Jain and Juergen Fitschen seek to convince investors the company has enough capital compared with assets to cushion against losses.

    Increased Netting

    Deutsche Bank also had long-term repo deals with three other lenders — National Bank of Greece SA (ETE), Athens-based Hellenic Postbank SA (TT) and Qatar’s Al Khaliji — according to four people with direct knowledge of the financings. The transactions involved netting, according to one of the people, who was briefed on how Deutsche Bank accounted for them. No documents about the three loans were made available to Bloomberg News.

    By the third quarter of 2009, the amount of netting was expanding at a pace that led at least two senior executives to express concern that the bank’s assets would increase if they could no longer offset the loans, the person said.

    Deutsche Bank’s Hanes said in a written response to questions about all six deals that “the information is inaccurate” and “includes references to purported transactions that never occurred, and in respect of companies for which we have never structured enhanced repurchase transactions.”

    She wouldn’t specify what information might be in error or dispute specific deals.

    “We do not comment on client transactions,” Hanes said.
    ‘Skewed’ View

    Every billion euros Deutsche Bank kept off its balance sheet inflated measures of its financial health, including capital ratios, which otherwise might have compelled it to raise more money from investors, according to Thomas Selling, an emeritus accounting professor at the Thunderbird School of Global Management in Glendale, Arizona, and a former academic fellow at the U.S. Securities and Exchange Commission.

    “Investors are relying on the financial statements for an unbiased view of the risk of the bank, and that view has been skewed,” said Selling, one of three accountants who examined deal documents at the request of Bloomberg News. “It makes their balance sheet look less risky than it really is.”

    Deutsche Bank ranks last among global banks by at least one risk measure — the proportion of tangible capital to total assets, known as the leverage ratio — according to data as of Dec. 31 compiled by Thomas Hoenig, vice chairman of the U.S. Federal Deposit Insurance Corp., which handles bank failures and sets capital levels along with other bank regulators.

    Capital Shortfall

    Kian Abouhossein, a JPMorgan Chase & Co. analyst in London, estimated in a July 4 note to clients that Deutsche Bank may face a capital shortfall of 12.3 billion euros under a proposal by the Basel Committee on Banking Supervision to include assets that are off banks’ books in leverage calculations.

    Hanes said the company is “among the best-capitalized banks in the world in our global peer group” after improvements in its capital ratio and the sale of stock and subordinated debt this year. Chief Financial Officer Stefan Krause said in an interview with Boersen-Zeitung published July 6 that the firm would reduce its balance sheet and set aside profit as regulators implement stricter leverage rules.

    Deutsche Bank has ranked among the top three underwriters of international bonds, excluding self-led deals, since at least 2002 and is first this year, data compiled by Bloomberg show. It also improved its standing among loan arrangers to third place this year in Europe, Middle East and Africa, up from eighth in 2008, the data show.

    Short Position

    Deutsche Bank relied on what it called “no-balance-sheet usage” to keep loans off its books, documents for the Monte Paschi and Banco do Brasil deals show.

    In a typical secured borrowing, a bank lends cash it already has, recording the outlay as an asset on its balance sheet. In exchange, it gets collateral that it holds until the loan is repaid.

    In the no-balance-sheet transactions, Deutsche Bank received the collateral, sold it and used the cash to make the loan. By selling the collateral — government bonds, in the deals reviewed by Bloomberg News — Deutsche Bank created an obligation to return the securities, allowing it to net to essentially zero its assets and liabilities, the documents show.

    The lender in effect created a short position on the bonds, according to deal memos and internal e-mails about the transactions. In a short sale, traders sell borrowed securities and expect to buy them back at a lower price before returning them to the owner.

    Selling Collateral

    Deutsche Bank was able to sell the collateral because it didn’t have to return the bonds under the terms of the agreement. Instead, the borrower agreed that Deutsche Bank could return the “cheapest-to-deliver” equivalent in the event of default, the documents show.

    The German lender sold insurance against possible defaults of securities linked to the collateral, in effect moving the risk that the loan wouldn’t be repaid onto its trading book and away from public scrutiny, according to accountants who reviewed the documents for Bloomberg News.

    Deutsche Bank is shielded from the deterioration of a government’s creditworthiness because its client would have to post additional collateral. It was on the hook if the country defaulted on its bonds, the accountants said.

    “It goes against the spirit of any regulation,” said Arturo Bris, a finance professor at the IMD business school in Lausanne, Switzerland, who examined the Deutsche Bank documents. “Risks, like energy, get transformed but don’t disappear.”
    IFRS Rules

    The deals resembled repurchase agreements, or repos, in which a borrower sells securities to a lender, promising to buy them back at a future date at an agreed-upon price. Unlike typical repos, which are reported as loans and mature in as short a period as hours, the Deutsche Bank trades lasted five years or longer and weren’t recorded as assets, documents show.

    To keep loans off the balance sheet, Deutsche Bank executives invoked International Financial Reporting Standards rule IAS 32, which requires certain financial instruments to cancel each other if obligations are settled simultaneously or net throughout the life of the deal, the documents show.

    “Reporting on a net basis is an obligation, not an optional accounting treatment,” Deutsche Bank’s Hanes said.

    Default Insurance

    By agreeing to accept the cheapest asset in the event of default, Monte Paschi and Banco do Brasil effectively insured the bonds they gave Deutsche Bank as collateral. They paid interest on the borrowed cash and kept earning the coupons on the bonds, which they accounted for as still owning because they were, in effect, due to receive them back, the documents show.

    Deutsche Bank in turn earned a premium by acting as a broker on the default insurance by selling credit-default protection to investors, allowing the bank to record a profit at the outset. It reaped about 60 million euros that way at the start of the Monte Paschi deal, profit that was booked by the bank’s rates unit, the documents show.

    The deal is described in internal Deutsche Bank memos as a “structured term” repo. In public filings, Monte Paschi labels the financing both as a long-term repo and as “total return swaps” in which the Italian lender receives cash for bonds.

    Investors wouldn’t have known the netted-out deals existed because Deutsche Bank’s regulatory filings describe accounting practices that indicate it probably was showing the full loan amounts, two accountants who reviewed the deals said.
    Followed Rules

    Monte Paschi

    The bank’s 2 billion-euro loan to Monte Paschi in 2008, first disclosed by Bloomberg News in January, is being investigated by Siena prosecutors because the Italian firm used the transaction to hide losses.

    Deutsche Bank hasn’t been accused of wrongdoing in the matter. The deal “was subject to our rigorous internal approval processes and also received the requisite approvals of the client,” the firm has said. Jain declined to comment about the loans to banks.

    The documents outlining Deutsche Bank’s design and bookkeeping of loans to Monte Paschi and Banco do Brasil provide a glimpse of the other side of such transactions and reveal their deployment beyond Italy.

    When credit markets seized up in 2008, executives at Deutsche Bank’s global rates group in London, led at the time by Michele Faissola, along with bankers at other units, worked on long-term repo deals to help quench financial firms’ thirst for cash. Faissola, now the company’s global head of asset and wealth management, declined to comment.

    Dexia Deal

    The deals discussed in documents and cited by people with knowledge of the transactions involved some of the world’s most-troubled banks and economies at a perilous moment. They included the 2009 loan of 200 million euros to Banco Popolare, which like Monte Paschi took state aid from Italy.

    Deutsche Bank executives approved a similar transaction with Dexia, the Franco-Belgian lender that was later bailed out, documents show. In a four-page memo that concludes with the words “Approved 8 August 2008,” the bank’s Accounting Technical Forum described the cash outlay as a loan.

    “DB in effect has a financing transaction and books a loan to reflect this,” the accounting group said.

    A one-page annex explained that Deutsche Bank would offset the loan with its obligation to return the value of the bonds to Brussels-based Dexia.

    “No such trade was executed between Deutsche Bank and Dexia,” Hanes said.

    Still, the planned financing provided a blueprint bankers proposed using for future deals, the documents show. A February 2009 memo from the accounting group explained that approval for an enhanced repo with Banco do Brasil was restricted because of a “limitation of Euro 5bn on the repo netting determined under the initial Dexia trade approval from 2008.”

    Greek Loans

    Banco do Brasil, controlled by the Brazilian government, participated in a five-year deal with Deutsche Bank in 2009, in which it borrowed about $500 million, according to two people with knowledge of the financing.

    Al Khaliji borrowed $42 million from Deutsche Bank in 2009 in a long-term repo backed by Qatari government bonds, according to an executive at the Doha-based lender who asked not to be named in line with company policy.

    In Greece, which sparked Europe’s debt crisis by revealing in October 2009 that its budget deficit was more than double previous estimates, Hellenic Postbank borrowed at least 100 million euros from Deutsche Bank, according to two people with knowledge of the deal. National Bank of Greece, the country’s biggest lender, received 220 million euros, one person said.

    “We cannot give any disclosure or information on that deal because it was a bilateral transaction between banks,” said Petros Christodoulou, deputy CEO of National Bank of Greece.

    Harris Siganos, CEO of state-controlled Hellenic Postbank, declined to comment, as did spokesmen for Banco Popolare, Brasilia-based Banco do Brasil and Dexia.

    Bafin, Bundesbank

    The documents reviewed by Bloomberg don’t indicate whether regulators in Germany or elsewhere knew about the deals. Sven Gebauer, a spokesman for German financial watchdog Bafin, said confidentiality prohibits the regulator from commenting on specific companies or transactions.

    Ute Bremers, a spokeswoman for Frankfurt-based Bundesbank, Germany’s central bank, declined to comment, as did John Nester at the SEC in Washington. A spokesman for the London-based International Accounting Standards Board, which sets rules, said the group doesn’t comment on how they are applied.
    Project Santorini

    “The figures should be disclosed,” said Edgar Loew, an honorary professor at WHU-Otto Beisheim School of Management in Vallendar, Germany, who examined the Deutsche Bank documents for Bloomberg News. “This type of accounting was not intended by the rules.”

    Posted by Pterrafractyl | August 9, 2013, 7:12 am
  5. Yikes:

    The Telegraph
    Zurich chairman Josef Ackermann quits over suicide claims
    The chairman of Zurich Insurance Group has abruptly quit with the sensational admission that he may be implicated in Monday’s apparent suicide of its chief financial officer.
    By Alistair Osborne, Business Editor

    7:21PM BST 29 Aug 2013

    Josef Ackermann, the former chief executive of Deutsche Bank, said he was resigning because he did not want to “damage” the reputation of the Swiss insurer already reeling from the death of Pierre Wauthier.

    Mr Wauthier, 53, who was married with two children, was found dead at his home in lakefront suburb of Zug outside Zurich. On Tuesday police said he appeared to have taken his own life.

    In a brief statement, Mr Ackermann, 65, said: “The unexpected death of Pierre Wauthier has deeply shocked me. I have reasons to believe that the family is of the opinion that I should take my share of responsibility, as unfounded as any allegations might be.”

    His enigmatic remarks, which the insurer declined to clarify, sent shockwaves through the financial community as reports suggested that Mr Ackermann’s attempt to “shake up” the insurer had put Mr Wauthier under insufferable pressure.

    His widow, Fabienne Wauthier, was also said to have accused Zurich’s management of driving her husband “into a corner” and that Mr Ackermann’s “tough management style” had been a key factor in his death, according to a Swiss news website.

    One former colleague of Mr Wauthier was quoted saying: “Pierre was under a lot of pressure because there was a lot more pressure from above on the share price, this was an open secret. Wauthier had effectively reached his career ambitions, CFO was his dream.”

    He had worked for Zurich for 17 years, becoming CFO in 2011.

    A spokesman for the insurer would neither confirm or deny reports that Mr Wauthier had been bullied at work, saying: “We hate to speculate because it brings pain.”

    There has also been speculation in the local media that Mr Wauthier left a suicide note – though this has not been confirmed by police.

    Martin Senn, Zurich’s chief executive, told Swiss broadcaster SRF, however, that the insurer hadn’t “seen any conflicts that could or should have led to such a death”.

    Mr Ackermann ended a 10-year stint as Deutsche Bank boss in May 2012, having steered Germany’s biggest lender through the 2008 financial crisis and played a pivotal role in the industry as chairman of its lobby group, the Institute of International Finance.

    The Swiss national became Zurich’s chairman in March last year, having earlier been touted as a candidate for bigger jobs including the head of the Swiss National Bank.

    One insider said: “Ackermann did not became chairman at Zurich in order not to change anything.”

    The past year has seen senior departures, with former general insurance head Mario Greco leaving to lead Italian insurer Generali and life insurance chief Kevin Hogan departing a fortnight ago to become AIG’s head of consumer insurance.

    Mr Ackermann had not yet succeeded in improving the insurer’s performance, however, with its most recent quarter showing an 18pc drop in profits.

    Mr Ackermann is no stranger to controversy. In 2006, he agreed to make a €3.2m (£2.73m) payment without any admission of wrongdoing to avoid trial in a dispute over bonuses to executives at Mannesman, the telecoms group bought by Vodafone.

    Mr Wauthier looks to be the second top executive of a Swiss company to have committed suicide in the past five weeks, following the death of Swisscom’s 49-year-old chief executive Carsten Schloter.

    Posted by Pterrafractyl | August 29, 2013, 11:22 pm
  6. Worth noting…:

    Deutsche Bank to pay $1.92B in mortgage settlement
    By AP December 20, 2013, 12: 09 PM

    McLEAN, Va. – Deutsche Bank will pay $1.4 billion euros ($1.92 billion) to settle a mortgage-backed securities dispute with the Federal Housing Finance Agency, on behalf of Fannie Mae and Freddie Mac.

    The agency, which oversees the two government-controlled mortgage finance companies, sued 17 financial institutions over their sales of mortgage securities to Fannie and Freddie that soured when the housing market collapsed.

    FHFA alleged that between 2005 and 2007 Deutsche Bank did not provide adequate disclosure about some residential mortgage-backed securities sold to Fannie and Freddie.

    The agreement announced Friday resolves Deutsche Bank’s single largest mortgage-related litigation case. It also includes an agreement to resolve past and future claims that seek Deutsche Bank to repurchase mortgage loans tied to some of the disputed securities.

    Posted by Pterrafractyl | December 20, 2013, 12:56 pm
  7. German banks apparantly back off demands to get their gold back. ZeroHedge believes China may be in possession of the physical gold.

    Embeds in article, excerpt here:


    A Year Later, The Bundesbank Has Repatriated Only 37 Tons Of Gold (Of 700 Total)
    Submitted by Tyler Durden on 12/24/2013 12:09 -0500

    Procuring physical gold seems to be a rather problematic and time-consuming process, as the Bundesbank is learning.

    Recall that it was almost exactly one year ago in mid-January, when the German central bank, in a shocking development expressing the bank’s lack of trust in its central banking peers, announced that it would proceed with the repatriation of 700 tons of gold held by its “partners” the New York Fed and the Banque de France, by the end of 2020.


    The following section is the answer provided by the Bundesbank itself in late October in response to the question why it does not move the gold back to Germany:

    The reasons for storing gold reserves with foreign partner central banks are historical since, at the time, gold at these trading centres was transferred to the Bundesbank. To be more specific: in October 1951 the Bank deutscher Länder, the Bundesbank’s predecessor, purchased its first gold for DM 2.5 million; that was 529 kilograms at the time. By 1956, the gold reserves had risen to DM 6.2 billion, or 1,328 tonnes; upon its foundation in 1957, the Bundesbank took over these reserves. No further gold was added until the 1970s. During that entire period, we had nothing but the best of experiences with our partners in New York, London and Paris. There was never any doubt about the security of Germany’s gold. In future, we wish to continue to keep gold at international gold trading centres so that, when push comes to shove, we can have it available as a reserve asset as soon as possible.


    Following the statement by the President of the Federal Court of Auditors in Germany, the discussion is now likely to come to an end – and it should do so before it causes harm to the excellent relationship between the Bundesbank and the US Fed.


    “So we wonder: what changed in the three months between November and now, that has caused such a dramatic about face at the Bundesbank….


    Could it be that the Bundesbank is unable to repatriate more just because China is already buying up every marginal tons of physical gold in the market, and is making physical gold purchases by the Fed next to impossible?

    In other words, is China now holding Germany’s gold hostage, and if so when and what price would it release it to the New York Fed and the Banque de France? One look at just the pace of imports by China reveals that if indeed this is the case, then there may be a few snags in this hardly best laid plan of central bankers and men.


    Posted by Swamp | January 11, 2014, 11:42 am
  8. Bill Broeksmit, the former head of risk and capital optimisation in the Deutsche Bank’s investment unit and a close ally of Deutsche Bank’s current co-CEOs, was found hanging over the weekend:

    Ex-Deutsche Bank manager found dead in apparent suicide

    By Belinda Goldsmith and Thomas Atkins

    LONDON/FRANKFURT Tue Jan 28, 2014 12:54pm GMT

    (Reuters) – William Broeksmit, a former senior manager at Deutsche Bank with close ties to co-Chief Executive Anshu Jain, has been found dead at his home in London in what appears to have been a suicide.

    Jain and the bank’s other co-CEO Juergen Fitschen announced Broeksmit’s death in an internal mail to Deutsche Bank employees.

    When asked about the death, London’s Metropolitan Police issued a statement saying a 58-year-old man had been found hanging at a house in South Kensington on Sunday afternoon and been pronounced dead at the scene. Police declared the death non-suspicious.

    Broeksmit, a U.S. national, was an instrumental founder of Deutsche’s investment bank and one many bankers, including Jain, who joined Germany’s flagship lender from Merrill Lynch in the 1990s, when Deutsche launched plans to compete on Wall Street.

    Broeksmit was also a principal actor in Deutsche’s efforts to unwind its riskier positions and to reduce the size of its balance sheet in the wake of the global financial crisis.

    His death comes at an uncomfortable juncture for Jain and Fitschen, whose reign has been dogged by poor results and legal troubles since they took over from Josef Ackermann in 2012.

    The two CEOs are expected to defend their reform record at the bank’s annual news conference on Wednesday. Last week, they revealed that litigation and restructuring costs had pushed Deutsche to a surprise loss in the fourth quarter of 2013.


    Broeksmit, who worked as head of risk and capital optimisation, was viewed as one of Jain’s closest allies and a key player in the bank’s attempts to recover following the financial crisis.

    Jain sought to have Broeksmit join the management board as head of risk management in 2012. But in a major setback for both men, German regulator Bafin blocked the appointment, saying Broeksmit lacked experience leading large teams.

    Bafin was not immediately available for comment. The Bundesbank, which also oversees Deutsche, declined to comment.

    Broeksmit worked alongside Jain at Merrill Lynch before joining Deutsche in 1996 as part of group of roughly 100 bankers who, alongside Edson Mitchell, formed the core of Deutsche’s new investment banking business.

    Mitchell, one the bank’s most powerful executives, died in a plane crash in 2000.

    Broeksmit left Deutsche in 2001 but rejoined in 2008 as Deutsche and other investment banks struggled during the financial crisis. He filled senior roles and reported to Colin Fan, head of markets and co-head of corporate banking and securities. Broeksmit retired from Deutsche in February 2013.

    After handing over the reins to Jain and Fitschen in 2012, Ackermann became chairman of Zurich Insurance. But he resigned last year when the Swiss insurer’s finance chief Pierre Wauthier killed himself and blamed Ackermann in a suicide note.

    In other news…

    Posted by Pterrafractyl | January 28, 2014, 6:48 pm
  9. Here is another one, this time at JP Morgan.


    JP Morgan IT executive plunges to death at bank’s London HQ

    Tue Jan 28, 2014 12:35pm EST

    By Costas Pitas and Laura Noonan

    Jan 28 (Reuters) – A JP Morgan tech executive fell to his death from the U.S. bank’s 33-storey tower in London’s Canary Wharf financial district on Tuesday in what British police said was a “non-suspicious” incident.

    Police were called to the glass skyscraper at 8:02 GMT, where a 39-year-old man was pronounced dead at the scene after hitting a lower 9th-floor roof. Witnesses said the body remained on the roof for several hours.

    London police said no arrests had been made and the incident was being treated as non-suspicious at this early stage.

    A source familiar with the matter confirmed the deceased was Gabriel Magee, a vice president with the JP Morgan’s corporate and investment bank technology arm, who had been an employee since 2004.

    “We are deeply saddened to have lost a member of the JP Morgan family at 25 Bank Street today,” JP Morgan said in a statement. “Our thoughts and sympathy are with his family and his friends.”

    Workers in Canary Wharf, whose Manhattan-style skyscrapers form part of one of the world’s major financial centres, took to Twitter to express their shock at the death.

    “The 9th floor roof of JP Morgan is visible from my office window,” tweeted Hetal V Patel. “For a long time the body was left cordoned and unattended. Weird. #Wharf.”

    The JP Morgan building has been the headquarters of the bank’s Europe, Middle East and Africa operation since July 2012. It was previously occupied by Lehman Brothers, whose staff left with their belongings in cardboard boxes after the investment bank filed for bankruptcy on Sept. 15, 2008.

    Home to Barclays, Citi, Credit Suisse, HSBC, JP Morgan, Morgan Stanley, State Street and Thomson Reuters, Canary Wharf, lies to the east of the City of London.

    Though the details of Tuesday’s incident are still unclear, occasional suicides by people working in London’s big banks have provoked criticism of the demands placed on some financial services workers.

    A Bank of America exchange manager jumped in front of a train and another man jumped from a seventh-floor restaurant, both in 2012. A German-born intern at Bank of America died of epilepsy last year in London.

    On Tuesday, when asked about the death of William Broeksmit, a former senior manager at Deutsche Bank, London police said a 58-year-old man had been found hanging at a house in South Kensington on Sunday afternoon.

    Posted by Vanfield | January 29, 2014, 1:53 pm
  10. Uh oh

    Exclusive: Deutsche fires three New York forex traders – source

    By Paritosh Bansal and Emily Flitter

    NEW YORK Tue Feb 4, 2014 6:46pm EST

    (Reuters) – Deutsche Bank AG DBKGN.DE has fired three New York-based currency traders, in the latest sign that a probe over alleged manipulation of foreign exchange markets is gathering steam, according to a source familiar with the situation.

    Diego Moraiz, Robert Wallden and Christopher Fahy were terminated by the bank, which told trading floor staff of the development on Tuesday, according to the source.

    The terminations come as authorities around the world, including Britain’s Financial Conduct Authority and the U.S. Justice Department, investigate possible manipulation in the $5.3 trillion-a-day global forex market.

    Investigators are looking at activity around benchmark foreign exchange rates, often referred to as fixes, which are used to price trillions of dollars worth of investments and deals and relied upon by companies, investors and central banks.

    Many of the largest global banks, including Deutsche Bank, UBS AG (UBSN.VX), JPMorgan Chase & Co (JPM.N) and Citigroup Inc (C.N), have said they are cooperating with the probes. Several banks have suspended or fired traders.

    Earlier in December, Deutsche had suspended Moraiz, a source told Reuters previously. Moraiz, who had been with Deutsche Bank since 2004 and is close to 50, was the head of its emerging markets foreign exchange trading desk and specialized in trading the Mexican peso. He was a managing director, and the most senior of the three traders to be terminated on Tuesday.

    Fahy, who is in his mid-30s, and Wallden, 29, were both directors in the forex trading unit.

    The Wall Street Journal reported in November that FBI agents had visited Wallden’s home, where they showed him transcripts of an electronic chat in which he appeared to boast about trying to manipulate forex markets.

    Three down…hundreds to go?

    Deutsche, Citi feel the heat of widening FX investigation

    By Jamie McGeever

    LONDON Wed Jan 15, 2014 2:44pm EST

    (Reuters) – Global investigations into alleged currency market manipulation intensified on Wednesday as U.S. regulators descended on Citigroup’s London offices and Deutsche Bank suspended several traders in New York, sources told Reuters.

    The presence of Federal Reserve and Office of the Comptroller of the Currency officials at Citi’s Canary Wharf office in the east of London this week comes after Citi last week fired its head of European spot foreign exchange trading, Rohan Ramchandani, following a prolonged period on leave, one source familiar with the matter said.

    The suspensions of staff at Deutsche Bank in New York and possibly elsewhere in the Americas followed investigations into “communications across number of currencies,” a second source said.

    These are the latest developments in the worldwide investigation into allegations that traders at some of the world’s biggest banks colluded to manipulate the largely unregulated $5.3 trillion-a-day foreign exchange market, by far the world’s biggest.

    Deutsche and Citi are the two biggest players in that market, accounting for a combined 30 percent of that turnover, according to a Euromoney magazine poll. Deutsche has been the biggest FX bank for nine years running.


    In October last year, the FCA began a formal investigation and the U.S. Justice Department confirmed it was actively investigating possible manipulation of the global FX market.

    The FCA is focusing on around 15 banks, whom it has asked for – or required to provide – information about currency trading activities.

    Although several traders at several banks have been suspended or put on leave, Ramchandani is the highest profile departure to date. Ramchandani could not be reached for comment.

    The investigations centre on senior traders’ communications in electronic chatrooms, which also featured prominently in a five-year probe into the rigging of a key interest rate known as the London interbank offered rate, or Libor.

    The Libor scandal has already cost banks $6.0 billion in settlements and seen the first suspects brought to court.

    In an effort to avoid the further wrath of authorities, global banks such as Citi, Deutsche, JP Morgan, UBS, and Goldman Sachs have curtailed the use of chatrooms.

    Traders at banks and other financial institutions often communicate with each other via third-party services including those offered by Bloomberg LP and Thomson Reuters Corp., the parent of Reuters News.

    Groups of senior FX traders on Bloomberg chatrooms, known by names such as “The Cartel” and “The Bandits’ Club”, are alleged to have shared market-sensitive information surrounding the popular benchmark currency rate known as the London “fix”.

    Another source familiar with the investigation told Reuters in New York that “hundreds” of traders around the world were potentially engaging in these practices.

    Posted by Pterrafractyl | February 4, 2014, 7:50 pm
  11. This is getting really, really crazy – Suicide by NAILGUN!

    From Zerohedge:


    4th Financial Services Executive Found Dead; “From Self-Inflicted Nail-Gun Wounds”
    Submitted by Tyler Durden on 02/07/2014

    .The ugly rash of financial services executive suicides appears to have spread once again. Following the jumping deaths of 2 London bankers and a former-Fed economist in the US, The Denver Post reports Richard Talley, founder and CEO of American Title, was found dead in his home from self-inflicted wounds – from a nail-gun. Talley’s company was under investigation from insurance regulators.

    Via The Denver Post,

    Richard Talley, 57, and the company he founded in 2001 were under investigation by state insurance regulators at the time of his death late Tuesday, an agency spokesman confirmed Thursday.

    It was unclear how long the investigation had been ongoing or its primary focus.

    A coroner’s spokeswoman Thursday said Talley was found in his garage by a family member who called authorities. They said Talley died from seven or eight self-inflicted wounds from a nail gun fired into his torso and head.

    Also unclear is whether Talley’s suicide was related to the investigation by the Colorado Division of Insurance, which regulates title companies.

    Here’s The Denver Post link:


    Under investigation, American Title CEO dead in grisly suicide
    By David Migoya
    The Denver Post


    Before coming to Colorado, Talley was a former regional financial officer at Drexel Burnham Lambert in Chicago, where he met his wife, Cheryl, a vice president at the company. The two married in 1989.

    Talley had formed a number of companies, some now defunct, according to the Colorado secretary of state’s office. Among them: American Escrow, Clear Title, Clear Creek Financial Holdings, Swift Basin, Sumar, American Real Estate Services, and the American Alliance of Real Estate Professionals.

    In addition to its headquarters in the Peakview Tower near Fiddler’s Green Amphitheatre in the Denver Tech Center, American Title has offices in Pueblo, Brighton, Boulder, Westminster, Lakewood, Wheat Ridge and Fort Collins, according to its website.

    Talley’s 1989 wedding announcement in the Chicago Tribune noted he was a graduate of the University of Miami and had a graduate degree from Northwestern University’s Kellogg Graduate School of Management.

    It also said he was “a member of the 1980 U.S. Olympic swimming team.” A spokeswoman for USA Swimming on Thursday said Talley was not on the team.

    Posted by Swamp | February 8, 2014, 11:50 am
  12. @Swamp: An ex-DBL executive currently under investigation shot himself eight times with a nail-gun in the torso and head!? He must have been in quite a rush if this was really a suicide because getting a gun to do the job couldn’t take that long. It also raises the question: did Talley own a gun? Beacuse if so, choosing a nail-gun seems like an extra awful way to go. If someone was trying to send a signal to others in the financial community to STFU, on the other hand, death-by-nail-gun would be pretty effective. Along those lines, it’s worth noting that the death of the JP Morgan executive in London, Gabrielle Magee, included the additional tragedy of having the guy’s body sit there on the cement, alone, with just a piece of plastic covering it for four hours. And this was a popular employee that, so far, does not appears to have given any indication to anyone that he might be considering suicide. Not surprisingly, the people working in that building were reportedly pretty disturbed by the experience:

    JP Morgan employee who fell to his death named as Gabriel Magee
    Magee, a vice-president in IT, landed on ninth floor of 33-floor building in Canary Wharf and was seen by office workers

    Haroon Siddique
    The Guardian, Tuesday 28 January 2014 12.31 EST

    An employee of JP Morgan investment bank who fell to his death from the firm’s European headquarters during rush hour in London has been named as 39-year-old Gabriel Magee.

    Magee, a vice-president in IT at the bank, landed on the ninth floor of the 33-floor building in Bank Street, in the busy Canary Wharf financial district, at about 8am on Tuesday. Police said they are not treating his death as suspicious.

    People in offices nearby on Bank Street spoke of their shock. David Payne said he arrived at the law firm where he works at 8.10am. He said: “A couple of my colleagues made me aware of what happened. They were upset after seeing a body of a gentleman, who appeared to have fallen from the top of JP Morgan in Canary Wharf. I witnessed the gentleman lying on the ground from my view from my desk. I believe the gentleman was in a suit, but I cannot be too sure. There was a significant amount of blood as well as broken concrete from the impact around him.”

    Payne said it was about four-and-a-half hours before the body, which was covered only by a small plastic sheet, was moved. “My colleagues and I, as to be expected, were upset by the incident. Around 12.30pm the body was moved with a cover put over the blood and damaged concrete and this still remains. I am not too sure what took so long as the poor man just appeared to be left alone.”

    Hetal Patel, a research analyst for FTSE, said people looking were looking at the scene through the window of the Bank Street office where she works when she arrived at about 8.15am. She said: “I am quite young and have just joined the [financial] industry so for me it was quite shocking. For most people [in my office] it was quite shocking.”

    Patel said the body could be seen from the window of the office kitchen, prompting some of her colleagues to avoid entering the room as a result.

    London Ambulance Service said: “We were called at 8.04am to Bank Street to reports of a person fallen from a height. We sent one ambulance crew, a duty officer, our hazardous area response team and London Air Ambulance to the scene. Sadly, a man in his 30s was pronounced dead at the scene.”

    The building has been the headquarters of JP Morgan’s Europe, Middle East and Africa operation since July 2012. It was formerly home to another investment bank, Lehman Brothers, before it collapsed in 2008, triggering the global financial crisis.

    Posted by Pterrafractyl | February 8, 2014, 6:38 pm
  13. “When one door closes, another door opens”: That’s what a lot of foreign mega-bankers are probably hoping right now

    The New York Times
    Deal Book
    Fed Closes a Loophole for Banks Overseas
    February 18, 2014, 3:23 pm

    Updated, 8:51 p.m. | Foreign banks with a major presence on Wall Street will no longer be allowed to avoid many of the tougher rules that the United States introduced after the financial crisis to prevent banking failures and bailouts.

    The Federal Reserve, a leading bank regulator, approved a final rule on Tuesday that will force the American operations of foreign banks to follow many of the same rules as American banks. In doing so, the Fed closed a gaping loophole that roughly half the big firms on Wall Street were able to exploit simply because their headquarters were overseas.

    Foreign banks lobbied against the rule, which was first proposed in 2012, arguing that their home country regulators already had sufficient oversight over their global operations. Critics of the rule also contended that it would interrupt the flow of capital around the world, and even prompt foreign banks to reduce their activities in the United States, damaging the American economy.

    But in writing its final rule, the Fed kept many of the elements that angered foreign banks, making only a few concessions. “The requirements applicable to foreign banking organizations with a large U.S. presence are an essential part of regulatory reform in the aftermath of the financial crisis,” Daniel K. Tarullo, the Fed governor who oversees regulation, said in a statement. In response to critics of the rule, he said that strengthening banks would help ensure that capital keeps flowing during times of stress. “I would say that the most important contribution we can make to the global financial system is to ensure the stability of the U.S. financial system,” he said.

    Under the rules, foreign banks with more than $50 billion of assets in America will have to form special holding companies in the United States. The Fed estimates that 15 to 20 foreign banks will have to form such holding companies. These entities will have to hold a minimum level of capital as a financial buffer to absorb potential losses. In addition, the holding companies will have to own a certain amount of easy-to-sell assets, in case they quickly need to raise cash in a period of stress. The foreign bank entities will also be subject to regular stress tests, which the Fed applies to banks to gauge whether they can weather shocks to markets and the economy. If a foreign bank fails the stress test, the Fed would, in theory, have the ability to stop it from paying dividends, even to its parent company.

    The new rules have their roots in the financial crisis, when foreign Wall Street firms took out huge emergency loans from the Fed to shore up their faltering businesses. Despite needing that assistance, some foreign banks later took steps to avoid elements of the financial system overhaul that Congress passed in 2010. Deutsche Bank, for instance, changed the status of its large American operations.

    Some analysts have said they believe that some foreign banks have been operating in the United States with far less capital than their American rivals. Deutsche Bank’s American operations, for instance, had negative capital ratios, an almost unheard-of practice in banking. Some analysts have estimated that Deutsche Bank will have to put several billion dollars of fresh capital into its American operations to comply with the new rules.

    By operating with low levels of capital, foreign banks were in some ways able to reduce the costs of running their business, giving them a competitive advantage over their American competitors like Goldman Sachs and Morgan Stanley. Still, the foreign banks’ American operations will be allowed to hold less than the largest American Wall Street firms. Under the new rules, the foreign bank operations will have to hold capital equivalent to as much as 4 percent of their assets, when applying the so-called leverage ratio. But the largest American banks will most likely have to maintain a leverage ratio of 5 percent.

    EU regulators are not exactly thrilled:

    The Los Angeles Times
    EU is troubled by new Fed rules for foreign banks operating in U.S.
    A European regulator says that making large foreign banks set aside more capital in reserve would impose an unfair burden on EU financial firms.

    By Jim Puzzanghera

    February 19, 2014, 4:39 p.m.

    A top European Union regulator raised concerns Wednesday that new Federal Reserve rules for foreign banks operating in the U.S. could place an unfair burden on EU financial firms.

    The Fed’s Board of Governors now requires Barclays, Deutsche Bank and other large foreign banks doing business in the U.S. to hold more capital in reserve for their U.S. operations to guard against losses and undergo stress tests to determine their financial health.

    The requirements, approved unanimously Tuesday, are similar to those for the largest U.S. banks.

    Michel Barnier, the European commissioner for internal market and services, plans to examine the new measures for their “potential impact on the global level playing field” of banking markets to ensure competition “on an equal footing,” said Barnier’s spokeswoman, Chantal Hughes.

    The new rules would apply to foreign banks with $50 billion or more in assets in the U.S. Those firms would have to set up U.S. holding companies and would be required to comply with Federal Reserve risk-management standards.

    The Fed estimated that 15 to 20 foreign banks, many based in the European Union, would have to set up new holding companies in the U.S.

    Hughes said the European Commission “has sympathy for the general objective” of Fed officials to limit the risks taken by banks operating in the U.S. But she reiterated concerns “about the way in which this significant regulatory reform has been introduced.”

    She said the Fed unilaterally enacted the rules instead of working cooperatively with regulators in other countries.

    The requirement to set up U.S. holding companies “imposes a substantial organizational cost” on foreign banks, Hughes said. And the Fed is implementing a “one-size-fits-all regulatory treatment” for all large foreign banks operating in the U.S. without regard for the regulatory requirements and supervision of their home regulators, she said.

    “In general, this approach seems at odds with the long-standing efforts to move toward a globally consolidated supervision of large banking groups, under the responsibility of the authorities of the parent,” Hughes said.

    Fed Gov. Daniel K. Tarullo said the Fed tried to be responsive to foreign concerns and made changes to the original proposal.

    But he said that there were problems during the 2008 financial crisis with foreign banks operating in the U.S., such as potential funding shortfalls that “made them disproportionate users” of emergency programs set up by the Fed.

    “The most important contribution we can make to the global financial system is to ensure the stability of the U.S. financial system,” he said.

    So will EU banks end up the recipients of another big Fed bailout or has that possibility been squelched? We’ll see!

    Posted by Pterrafractyl | February 20, 2014, 9:40 am
  14. When the rats jump ship, they jump for ‘personal reasons’:

    Traders Join Exodus as Forex Probes Add Pressure on Costs
    By Edward Evans and Andrea Wong Apr 29, 2014 6:03 PM CT

    The ranks of foreign-exchange traders are rapidly thinning as a probe into alleged manipulation of benchmark rates widens and pressure mounts on the industry to reduce costs.

    More than 30 traders from 11 firms have been fired, suspended, taken leaves of absence or retired since October, when regulators said they were investigating the market, according to data compiled by Bloomberg. London-based Barclays Plc and Zurich-based UBS AG have been the worst-hit, each suspending at least half a dozen employees, the data show.

    “That’s a considerable percentage of the workforce,” said Brad Bechtel, managing director at Faros Trading LLC in Stamford, Connecticut, who estimated the world’s largest banks have 80 to 160 voice traders for spot rates in the currencies market. “That explains the lack of liquidity in the market, and why what would normally be considered a small trade can actually push the market around more than normal.”

    Regulators around the world are investigating allegations traders colluded to rig key foreign-exchange benchmarks used by investors and companies by pushing through trades before and during the 60-second windows when the WM/Reuters rates are set. At the same time, banks are trying to fight shrinking margins by replacing humans with computers, accelerating a longer-term shift in trading onto electronic platforms.

    About 200 traders at smaller firms focus on spot exchange rates, Bechtel estimated in an e-mail.

    ‘The Mafia’

    Authorities are examining whether bank traders communicated with dealers at other firms and timed trades to influence benchmarks and maximize profits. Some exchanged information on instant-message groups with names such as “The Cartel,” “The Bandits’ Club,” “One Team, One Dream” and “The Mafia.” No firms or traders have been accused of wrongdoing by government authorities.

    Regulators from Bern, Switzerland, to Washington opened inquiries into the $5.3 trillion-a-day market after Bloomberg News reported in June that traders colluded to rig the WM/Reuters rates. No firms or traders have been accused of wrongdoing by government authorities.

    Personal Reasons

    While many personnel moves were prompted by the probes, some people pointed to other motivations while stepping back.

    Lloyds Banking Group Plc’s global head of spot foreign exchange, Darren Coote, resigned from the London-based firm for personal reasons, people with knowledge of the move said earlier this month.

    James Pearson, Royal Bank of Scotland Group Plc’s head of trading for currencies in Europe, the Middle East and Africa, is taking a five-month sabbatical, also for personal reasons, the Edinburgh-based company said this week.

    Deutsche Bank AG said this week that its global head of foreign exchange, Kevin Rodgers, will retire in June. Rodgers, 52, plans to focus on academic and musical interests, according to the Frankfurt-based bank. His decision wasn’t prompted by the inquiries, according to a person briefed on his plans.

    Look out below…

    Posted by Pterrafractyl | April 30, 2014, 7:38 am
  15. With the Brexit now a done deal, it’s worth noting that back in January David Folkerts-Landau, chief economist at Deutsche Bank, had a take on the possible consequences of the Brexit that were pretty noteworthy both for the dire nature of his predictions and the fact that this is the chief economist of one of the largest remaining EU-based banks. As he sees it, “If Brexit were to occur, continental Europe will be relegated to second rank status”:

    The Telegraph

    ‘Devastating’ Brexit will consign Europe to a second rate world power, warns Deutsche Bank
    “The implications of the UK not being in the EU will be truly devastating for Europe” says David Folkerts-Landau

    By Mehreen Khan

    4:00PM GMT 26 Jan 2016

    Britain’s exit from the European Union would have a “devastating” impact on the continent, relegating Europe to the status of a second-rank world power, a leading investment bank has warned.

    David Folkerts-Landau, chief economist at Deutsche Bank, said a Europe without British influence would greatly diminish the EU’s diplomatic clout at a time when it faces an unprecedented security threat from a revanchist Russia.

    “The implications of the UK not being in the EU will be truly devastating for Europe,” said Mr Folkerts-Laundau.

    “If Brexit were to occur, continental Europe will be relegated to second rank status.”

    A German-born economist, Mr Folkerts-Laundau warned the geopolitical impact of a Brexit had become a “forgotten dimension” of the EU debate.

    “Europe will become far less important and its impact on foreign policy, within the UN and global decision making, will be diminished,” he said.

    Without the UK, Europe could no longer lay claim to the centre of global capitalism: “It would lose London and the Anglo-Saxon connection,” said Mr Folkerts-Laundau.

    Power dynamics within the EU would also become fundamentally “disturbed” as the Franco-German axis would dominate the continent. “The checks and balances imparted by the UK will be gone”.

    Research from Deutsche Bank shows sentiment for staying in the EU is closely linked with the eurozone’s economic fortunes – supporting the case for an early referendum as the currency bloc enjoys a cyclical recovery.

    But Mr Folkerts-Laundau said there was no easy way out of the eurozone’s economic malaise.

    Unprecedented stimulus measures from the European Central Bank were the only things standing in the way of another financial crisis in Europe, he warned.

    “If the ECB was to step back from that you would have a massive sovereign debt crisis,” he said.

    Despite enjoying a virtuous trinity of falling oil prices, low interest rates and looser fiscal policy, growth in the eurozone is only expected to reach 1.7pc this year, according to the International Monetary Fund. Britain and the US are expected to expand by 2.2pc and 2.6pc respectively.

    Mr Folkers-Laundau said growth needed to exceed 2pc a year for the eurozone to tackle massive stocks of government debt in Italy and Portugal.

    “Power dynamics within the EU would also become fundamentally “disturbed” as the Franco-German axis would dominate the continent. “The checks and balances imparted by the UK will be gone”. ”

    That’s one of the more interesting dynamics to watch for: given the Animal Form nature of the EU, where everyone is equal but some are more equal than others, the UK did play a useful role as that of a tie-breaker between the two top EU animals, Germany and France. What’s the new dynamic going to be? What major EU decisions in recent years on topics like austerity or further, more rapid would have gone a different way if the UK was never part of the EU? It’s a question worth asking at this point.

    At least, since the UK wasn’t part of the eurozone, hopefully that means we won’t any significant pull back in the ECB’s stimulus plans because as Deutsche Bank’s chief economist warns us…

    But Mr Folkerts-Laundau said there was no easy way out of the eurozone’s economic malaise.

    Unprecedented stimulus measures from the European Central Bank were the only things standing in the way of another financial crisis in Europe, he warned.

    “If the ECB was to step back from that you would have a massive sovereign debt crisis,” he said.

    Of course, this same economist wrote a scathing report demanding the ECB start raising rates the following month, so who knows what he’s thinking today.

    But at least back in January Deutsche Bank’s chief economist predicted continental Europe would be relegated to less influential and more prone to internal conflicts if the UK voted to for the Brexit. And then the UK went ahead and voted for the Brexit. If Mr Folkerts-Landau still holds those views, he must not be very optimistic about the fate of the EU at this point. Although if the post-Brexit negotiations go sour and the UK’s banks lose ‘passport’ access to the EU, it seems like large banks like Deutsche Bank should be among the best positioned to swoop in and grab business the UK banks can no longer do.

    Still, it doesn’t sound like Deutsche Bank was very keen on seeing a Brexit and there is an array of possible reasons. For instance, even if Deutsche Bank wouldn’t mind a Brexit at some point in the future, but timing matters, especially when you’re a heavily-leveraged major bank, and it’s very possible that this was just a really bad time for Deutsch Bank too. Which might have something to do with George Soro’s decision to bet 100 million euros shorting Deutsche Bank right after the Brexit:


    Soros had Deutsche Bank ‘short’ bet at time of Brexit fallout

    Tue Jun 28, 2016 11:45am EDT

    Billionaire investor George Soros took out a bet of more than 100 million euros ($111 million) that Deutsche Bank (DBKGn.DE) shares would fall at the time of Britain’s vote to quit the European Union, according to a regulatory filing.

    Soros, who is renowned for successfully betting against the pound in 1992, had a “short” position of 0.51 percent or about 7 million Deutsche Bank shares on June 24, the filing shows. There was no record of such a position in the days before.

    Deutsche Bank shares have fallen about 17 percent since June 23, the day of the referendum, which could make Soros millions of dollars. However, on Tuesday he still held a short position of 0.46 percent, a separate filing showed.

    In short selling trades, investors borrow securities and sell them on, hoping to buy them back at a lower price and book the difference as a profit.

    Soros was not immediately available for comment.

    Banks across Europe have been battered by Britain’s decision to leave the European Union in a referendum on June 23.

    Deutsche Bank, which is undergoing a deep restructuring, has been hamstrung by having to pay out billions of dollars of fines to end a slew of legal disputes. Its shares are down more than 50 percent over the last year.

    Soros said on Monday he had not speculated against the British pound in the run-up to the referendum. “In fact, he was long the British Pound leading up to the vote,” a spokesman for Soros said.

    Separately, hedge fund Marshall Wace also held a short position in Deutsche Bank of about 0.5 percent on June 24, a filing showed.

    “Deutsche Bank shares have fallen about 17 percent since June 23, the day of the referendum, which could make Soros millions of dollars. However, on Tuesday he still held a short position of 0.46 percent, a separate filing showed.

    So Soros started off with a 100 million euro short position, worth 0.51 percent of Deutsche Bank’s capital value, and continued to hold 0.46 percent after Deutsche Bank’s shares fell 17 percent. It would appear that George Soros sees more potential downside for Deutsche Bank. And he’s far from alone:

    The Wall Street Journal

    Deutsche Bank Shares Hit 30-Year Low After Fed, IMF Rebuke
    Stock drops after German bank fails Fed stress test and IMF says it’s the riskiest lender in the world

    By Friedrich Geiger and Hans Bentzien
    Updated June 30, 2016 9:50 a.m. ET

    Deutsche Bank AG shares tumbled to a 30-year low on Thursday after the International Monetary Fund and the U.S. Federal Reserve delivered the German lender a double whammy, saying it posed a significant risk to financial stability.

    The IMF said Deutsche Bank was the riskiest financial institution in the world as a potential source of external shocks to the financial system. That came right after a U.S. unit of Deutsche Bank was one of just two banks to fail the Federal Reserve’s “stress test,” an exercise measuring how 33 banks would fare in the event of another financial crisis.

    The Deutsche Bank unit was failed because of concerns about its ability to measure risks.

    Deutsche Bank shares traded down 2.7% at €12.32 ($13.71) Thursday afternoon in Frankfurt, after touching an intraday low of €12.05, the lowest in 30 years. Deutsche Bank and other banking shares had plummeted Friday and Monday in the aftermath of the U.K. referendum to leave the European Union.

    A trader said the Fed’s criticism of Deutsche Bank’s capital planning could render future capital measures, such as a capital increase, more difficult. The bank is in the midst of a wide-ranging overhaul, after posting a €6.8 billion loss for 2015..

    It was the second year in a row that Deutsche Bank failed the Fed’s stress test.

    The IMF said in its Financial Sector Assessment Program that “among the [globally systemically important banks], Deutsche Bank appears to be the most important net contributor to systemic risks, followed by HSBC and Credit Suisse. ”

    The institution also said the German banking system poses a higher degree of possible outward contagion, compared with the risks it poses internally.

    “In particular, Germany, France, the U.K. and the U.S. have the highest degree of outward spillovers as measured by the average percentage of capital loss of other banking systems due to banking sector shock in the source country,” the IMF said.

    The importance of Deutsche Bank emphasizes the need for risk management, intense supervision and monitoring cross-border exposure, as well as the ability of globally systemic banks to carry out procedures for winding down if necessary, IMF said.

    A Deutsche Bank spokesman declined to comment on the IMF assessment.

    Germany needs to examine whether its plans for winding down are operable, including a timely valuation of assets to be transferred, continued access to financial market infrastructures, and whether authorities can ensure control over a bank if resolution actions take a few days, if needed, by imposing a moratorium, the IMF said.

    “The IMF said in its Financial Sector Assessment Program that “among the [globally systemically important banks], Deutsche Bank appears to be the most important net contributor to systemic risks, followed by HSBC and Credit Suisse. ””

    A bigger contributor to systemic risks than HSBC. Bravo Deutsche Bank. That’s not an easy title to achieve.

    So when you factor in the IMF’s and Fed’s assessments of the risks facing Deutsche Bank, it’s understandable if Deutsche Bank ends up being extra unhappy about a Brexit in part because it sounds like the bank is a ticking time bomb. So even though Deutsche Bank may not have a particularly large exposure to business in London, ticking time bombs generally don’t like be jostled.

    It all raises one of the more interesting tensions at work in the post-Brexit aftermath: punishing the UK by limiting the scope of London’s financial access to the continent is already one of the punishments being talked about (although it could be an empty threat). And that could clearly be a benefit to the big French and German banks that would likely fill in the gaps for those financial services that move to the continent. At least in the medium and long-run. But in the short-run, how much will the punishment of UK’s financial be contained to just UK banks and not spill over to all the EU banks operating in London like Deutsche Bank? And what if we really do see a recession emerge from all this, or how about a full blown financial crisis? Is a bank with Deutsche Bank’s risk profile going to be able to hold itself together over the medium-term?

    That’s got to be one of the questions weighing heavily on the minds of EU lawmakers as they ponder how to retaliate. The EU appears intent on punishing the UK, but the more the punishment the greater the chance for blowback on globally systemically important institutions. Light those revenge fuses carefully.

    Posted by Pterrafractyl | June 30, 2016, 1:36 pm

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