The entire editorial staff of DealBreaker is being let go. Starting tomorrow, it’ll be written by Andrew Ross Sorkin.

On to another, even schlockier DB: Did a bunch of directors and VPs in Deutsche bank Lev Fin get laid off yesterday? Are cuts in industrials and consumer happening today? That’s what we’re told, though our tipster is French and still pissed about the Maginot line so who knows if he’s to be trusted. Biases aside, it would be a plausible solution to the German bank’s “profitability problem” for 2008.

Update: Deutsche Bank's troubles are a pretty good indicator of how badly things are going for global finance. Last month, Deutsche Bank reported a 48 percent decline in fourth-quarter profits, but said it had no subprime write-downs. Got that? Deutsche Bank is suffering huge profit declines and (maybe) laying people off despite not being exposed to the subprime sludge its rivals and Wall Street competitors have all conveniently made their fall guy.

Yesterday we heard two discordant voices on the possibility of the monolines getting downgraded. Jamie Dimon, the chief executive of JPMorgan Chase, said that he does not think downgrades of the insurers would be “a big deal.” Deutsche Bank chief Josef Ackerman, however, described the potential downgrades as “a tsunami-like event comparable to subprime.”

So who is right? Well, maybe both chiefs are. As Yves Smith has explained, the European banks were major buyers of CDOs and RMBS. Operating under Basel II, which links reserve requirements to the riskiness of a bank’s investments, the Euro banks were able to treat triple A paper as basically risk free investments they could hold without impacting their reserve requirements. But a downgrade of the insurance on this paper could result in the banks having to bolster their reserves, possibly worsening the credit crunch or requiring a firesale of the CDOs

“A downgrade to AA increases the reserve requirements markedly, and CDOs are generally downgraded more than a mere grade or two when they fall (I wish I could be more crisp here, but Basel II makes matters more complicated). Thus a loss of the bond guarantor AAA has a quick and nasty impact on bank capital adequacy,” Smith writes.

Which is to say, because Basel II requires banks either to hold highly rated (and, on paper at least, less risky) portfolios, or to hold high levels of capital in reserve, the banks could be forced to slow lending in order to accumulate capital, go hunting for additional capital injections or sell off their now risky CDO portfolios.

In the US banks had less incentive to invest in highly rated paper because they have been required to hold the same amount of capital against AAA-rated paper as they do against BBB-rated paper. This is the most likely explanation for why the European banks are more worried about a downgrade of the monolines than their US counterparts.

Deutsche Bank CEO: Bond Insurer Downgrade Will Create Debt " Tsunami" [Naked Capitalism]

Deutsche Bank CEO Josef “Chuckles” Ackermann, seen here being a very naughty boy and trying to get German chancellor Angela Merkel to laugh during an important press conference (which he successfully accomplished right after this picture was taken, by putting a Pez dispenser on her thigh), has added himself to the growing list of people who would rather be shot in the forehead with a cattle gun than be chief executive of Citigroup. Ackermann told friends and family that his reasoning was twofold: 1. Not enough opportunities for “Hitler Humor” and 2. Piss-poor marketing materials out of Citi Private Bank compared to DBA.B.

To date, 382,744 people have turned down offers from the board, including, most notably James Cayne. JC apparently lost all interest in the job when he was told he would not be allowed to dismantle the smoke detector in his office.

Deutsche: Nein [NYP]

Some of you might call that favortism but A. Oh, it is? I wish I had a problem with that and B. You'll be singing a different tune when you behold the glory that awaits you after the jump. All I will say is that it was sent to us by the greatest reader of all time, who "ripped it out of a glossy mag that was in [his] South Beach hotel room" and that when I called Deutsche to make sure it wasn't a joke, there was a good ten seconds of stifled but totally professional giggling on the other end before the magical pronouncement: "I'm embarrassed to tell you this, but yes, it's real. Enjoy."

From copyranter, how did this man get this woman on top of this building? Easy - a “passion to perform,” a desire to be “lifted even higher,” and a Deutsche in a box.

Step 1: Cut a hole in the logo
Step 2: Put your Deutsche in that box
Step 3: Make her sit on the box

And that’s the way you do it.

Deutsche Bank. A Passion to Perform...oral sex on our Logo. [copyranter]

The hauntingly empty lobby of Bear Stearns

Yesterday’s showdown over the fate of two big Bear Stearns hedge funds “marks an important test of the financial markets’ resiliency,” according to this morning’s Wall Street Journal. So the natural question is: how did the financial markets score? What does the report card look like on the day after several investment banks flinched from pushing these two funds over the edge?

If “Plays Well With Others” was one of the subjects being tested, several of the investment banks who were exposed to the losses at the hedge funds scored very well. JP Morgan Chase, Goldman Sachs and Bank of America all reached negotiated deals with Bear Stearns to limit their risk. Although the details are sketchy, it seems that these deals involve Bear Stearns buying back collateral assets the banks had seized, forestalling a need to auction them off.

Merrill Lynch didn’t score quite as highly in this category, and late yesterday afternoon proceeded with an auction of Bear Stearns assets it had seized. We’re told the auction met with mixed results. Some of the higher-quality assets with less exposure to the subprime market met fetched what the Journal calls “reasonably high prices.” Other assets—variously described as “sludge,” “junk in investment-grade clothing” and “immoveable objects” by traders we talked to—faired less well. The Naked Capitalism blog describes them as fetching “atrocious prices.” Deutsche Bank also seems to have opted to auction off its collateral rather than cut a deal with Bear Stearns.

But at a more fundamental level, the test may have revealed a foreboding weakness in the credit derivatives market. JP Morgan, Goldman and Bank of America are said to have pulled back from auctioning off the collateral because earlier feelers put out to potential buyers revealed that the assets they had seized would have “fetched so little in the market,” according the Journal. The idea is that if they had brought down the the Bear funds, the investment banks would have hurt themselves as well. As Alphaville puts it, "So the picture becomes clearer: eat, be eaten, eat each other, but stop before you accidentally eat yourself."

But something even more ominous also may have convinced the banks to reach a settlement a real market test for these assets—the CDOs rarely traded and are priced according to complex mathematical models—might have demonstrated that they were worth far less than they were valued at on the books of hedge funds and investment banks. This could cause a ripple effect, forcing re-valuations at many hedge funds that hold similar assets, and at the banks that lend to them.

“As its two credit focused hedge funds with about $20bn of highly leveraged assets are put on ventilators, there is real pressure in the market for the creditors not to sell the collateral for fear of undermining the value of the CDOs and other debt packages. As we all know, they are near impossible to price accurately, due to the nature of the underlying distressed assets, and if these CDO’s are valued downwards, then all hedge funds who own similar subprime assets will have to do the same and hey presto we have a falling market, more defaults and the house of cards comes tumbling down,” Finbar Taggit writes today.

In short, by flinching from auctioning off the CDOs, JP Morgan and the other banks that reached deals with Bear Stearns may have prevented what some feared would become the much heralded “systemic event” in which the collapse of one hedge fund brings down all the others. But the cost of doing so appears to be keeping the actual market values of many of these assets more or less financially illegible. And keeping markets and regulators illiterate when it comes to reading the risks of these products.

One trader we spoke to described the outcome as a “cartoon moment.”

“As long as Wiley Coyote doesn’t realize he’s run off the cliff, he won’t fall,” he said. “These guys don’t want to look down because they are afraid there may be no there there.”

Bear's Woes Test Markets' Mettle [Wall Street Journal]
Bear Stearns Staves Off Collapse of 2 Hedge Funds [New York Times]
Subprime sector hit by $1bn assets sale [Financial Times]
Bear feast - be sure not to eat yourself [FT Alphaville]

The results of yesterday’s “Which bank has the dirtiest working conditions” poll are in. Some of the results may surprise you, some may not. If you actually read what we wrote about Bear Stearns’s in-house cafeteria and its 42 health-code points violations, for instance, you won’t (or shouldn’t) be surprised to learn that it landed in the top three (and if you read the part about contaminated food and inadequate levels of personal cleanliness and are still stunned, don’t invite us over to your home any time soon). If you didn’t know, though, that the 85 Broad is basically one step away from a gas station restroom on the Garden State Parkway (going South), you might be a bit caught off guard to learn that the Kingdom also landed at the top of the list of shame (all that glitters is not gold, indeed). Let’s examine the cold hard (dirty, disgusting, scatological) facts now.

Is the Citigroup acquisition of Deutsche Bank AG back on? Shares of Germany's biggest bank saw as much as six percent gain today (they're up 4.7% right now), and the rumor is everywhere. There were talks of an acquisition three years ago but they fell apart over fears of political fall-out.

Update: Bloomberg's on the story.

First the confirmation that the rumor is driving up the share price:

"We heard a rumor Citigroup might bid for Deutsche Bank,'' said Joerg Treptow, a trader at M.M. Warburg & Co. KGaA in Hamburg. "This is boosting the shares today.''

Next the analyst who is skeptical about the rumor.

"I place very little credibility on this speculation,'' said Jon Peace, an analyst at Fox-Pitt Kelton Ltd in London. Integrating the banks' investment-banking units would be "very costly," and Citigroup could expand consumer banking in Germany through other banks, he said.

Deutsche Bank Shares Surge on Takeover Speculation [Bloomberg]

We all had a great laugh at Aleksey Vayner but watching this "Team Building" video for Deutsche Bank answers a few questions about where Vayner might have learned to talk like that.

[Hat Tip: Banker's Ball.]

If you are anything like us, the different cultures of different banking operations is more than a minor obsession. So we were all too pleased to discover that the blogger behind Information Arbitrage has set out on a "Wall Street Series" about his personal experiences on the inside. The first post in the series details his very different experiences at Citibank (where he worked prior to a just after its merger with Travelers) and Deutsche Bank (where he worked after the acquisition of Bankers Trust).

But let's start with this quote focused on how the Citi-Travelers merger destroyed Citi's corporate culture:

Then one day it was announced that Citicorp and Travelers were merging. And there would be Co-CEOs. HA! We all know how that movie ended - Sandy Weill, the consummate operator, completely outmaneuvered the brilliant yet introverted and apolitical John Reed, and the Co-CEO thing ended pretty quickly. Travelers/Salomon Brothers had won, and Citi had been vanquished. So what did this mean in the trenches? Full disclosure: I thought the merger sucked. I was part of the Institutional Investor #1 ranked derivatives shop in the world two years running at Citi, yet was part of a team relegated to taking a back seat to people staffing the #17 ranked derivatives shop on the Street? This didn't feel very good or make a whole lot of sense. I could see the merger killing one of the unique cultures in one of the most unique and important financial institutions in the world - which, in fact, it did. But how? But why?

All that's missing is a picture of Sandy Weill with a blood-soaked knife.

The Wall Street Series Part I: Deutsche vs. Citi - A Study in Wall Street Cultures [Information Arbitrage]

We hear Deutsche Bank’s super-suped-up security extends beyond just the beefy armed guards patrolling the street outside its headquarters at 60 Wall. Yesterday apparently a consultant who was scheduled to attend a meeting at the bank was denied entry because his name appears on the federal “no fly” list.

“It was the most intense security I've seen, except for maybe the Israeli consulate,” a source who was present when the consultant was denied entry tells DealBreaker.

In our experience, security measures vary a good deal from bank to bank. You can practically just walk into some, while others like Deutsche Bank are locked down tighter than the Pentagon. We're curious about security where you work. Leave a message in the comments section below describing security measures at your bank or at banks you’ve visited.

According to a reader, Deutsche seems to have confused a weekly pay scale with a bi-weekly payscale for part of its intern program and are now sending "oops" emails to prospectives:

Deutsche bank has downwardly revised** its compensation package for its summer analysts for the second time in the past week, despite having already signed offers for the entire class. Originally, compensation was set at $2500 per two weeks, for 40 hours per week, and any time above that was paid overtime (time and a half for 8-12 hours/day, and double time for 12+hours per day). This meant that college students working at the bank would be able to make over $30,000 during the 10 week program, assuming they worked the 80-hour standard IB workweek. On Saturday, two months after signing their initial contracts, the bank fedex-ed the class new contracts, stipulating that they would pay fixed salaries of $2,500 per week, or $25,000 for the summer. While less attractive, it was still a dramatically better pay package than the rest of wall street, an issue that many members of the class factored in when accepting their initial offers. Today, they emailed the class, stating that the $2,500 per week was a mistake, and that they would be reducing our salaries to $2,500 per two weeks. While the final offer is certainly better than working at the Gap, it still seems unethical, given the fact that several members of the class rejected offers at hedge funds and other organizations at least partially on the basis of DB's ridiculously high compensation for interns. Additionally, it places those analysts who signed summer apartment leases based on their recommendation of spending about 30% of your salary on housing" in an uncomfortable situation. They may want to think about how this makes them look as an employer to those prospective full-timers they are trying to court

In the meantime, we suppose the affected analysts could make like JPMorgan interns and start their own blog...

** "Downwardly revised" its compensation package? Next time we fire someone, we're just going to tell them they're being "de-listed."