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.

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:

Bloomberg
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.

..

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.”

It looks like Ger­many finan­cial reg­u­la­tors are going to be inves­ti­gat­ing Deutsche Bank’s habit of hid­ing hun­dreds of bil­lions of euros in loans:

Bloomberg
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.”

...

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.

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.

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:

http://www.zerohedge.com/news/2013–12-24/year-later-bundesbank-has-repatriated-only-37-tons-gold-700-total

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.

——————-

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.

CLOSEST ALLY

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...

Here is anoth­er one, this time at JP Mor­gan.

http://www.reuters.com/article/2014/01/28/jpmorgan-man-death-idUSL5N0L22CK20140128

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.

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.

...

“HUNDREDS” COULD BE IMPLICATED

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.

This is get­ting real­ly, real­ly crazy — Sui­cide by NAILGUN!

From Zero­hedge:

http://www.zerohedge.com/news/2014–02-07/4th-financial-services-executive-found-dead-self-inflicted-nail-gun-wounds

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:

http://www.denverpost.com/news/ci_25081462/under-investigation-american-title-ceo-dead-grisly-suicide

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

(excerpt)

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.

@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.

“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
By PETER EAVIS
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!

When the rats jump ship, they jump for ‘per­son­al rea­sons’:

Bloomberg
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...

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:

Reuters

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..

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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.