The Germans are considering sending some bankers to live on a farm upstate, where there’s plenty of fresh air and room to run around. Read more »
It’s no surprise that more Liborneriness is coming to a bank near you; with Barclays and UBS already pretty much having admitted wide-ranging Libor manipulation and Deutsche Bank seeming to be next up for a roasting. Maybe some people will go to jail, and certainly some more banks will pay fines, but also certainly those fines will be very very very small compared to the potential lawsuits. Because there are eight hundred quazillion dollars of Libor-referencing contracts, and if you screwed them up then in some loose theoretical way you owe money to everyone who got screwed without having any offsetting claims against anyone who benefited.
Now the US legal system being what it is the lawsuits long preceded the evidence of manipulation and there’s a big mishegas of a Libor lawsuit that’s been going on for years in New York. This suit looks a little quaint now, being based on the theory that all the banks got together in a room, smoked cigars, rubbed their hands together, and agreed to lower Libor for some unspecified nefarious purpose. Now we know that they all worked against each other to lower and/or raise Libor for a variety of clearly specified nefarious purposes,* until the crisis hit and they all started working independently to lower Libor for clearly specified and maybe public-spirited purposes. And the banks will tell you that themselves, in their motion in the case filed last week:
Plaintiffs themselves cite as the primary motive for the alleged false reports a desire by Defendants to hide their supposed financial weakness from each other and the public, which would naturally call for circumspection by such banks, not discussion and agreement among them.
See? We would never work together to manipulate Libor – we’re too sneaky for that. We’d prefer to lie to each other, too. Read more »
The bad news is that Goldman Sachs, Deutsche Bank, UBS, and others have been making cuts and are expected to continue to do so. The good news is that not everybody is upset about it. Read more »
Tomorrow morning, Anshu Jain will start his new job as co-CEO of Deutsche Bank. Despite having previously overseen operations that produce 90 percent of the firm’s profits in any given quarter, sitting on the management committee, and generally being considered a “star” both within the company and among those who follow his work, chief executive officer is a title no one thought AJ would be given if he remained at DB, because 1) people back in Germany don’t like that he’s an investment banker and 2) “In Germany, no one can imagine an Indian working in London who does not speak German being CEO of Deutsche Bank.” To the haters’ chagrin, though, that’s exactly what’s about to happen. And if they want to continue bitching about it, they can be Jain’s guest– their insults go in one ear and out the other. Read more »
Bloomberg has this sort of surreal article today about Deutsche Bank basically quoting a bunch of people saying “we are way way too big to fail and it is awesome.” Like:
Banking consolidation “sadly” will be “one of the many potential unintended consequences of regulation,” [co-CEO-in-waiting-whatevs Anshu] Jain said in a Bloomberg Television interview on Jan. 26. When asked about the systemic risks posed by bigger banks, Jain said that “you have the tradeoffs of too-big-to-fail on the one side and the benefits of diversification on the other.”
So on the one side, if we screw up we’ll be saved by diversification, and on the other, if we screw up really bad we’ll be saved by you. Those tradeoffs are not exactly tradeoffs for DB. Or even better:
At the end of 2010, Deutsche Bank was ranked the world’s most systemically important financial institution by Japan’s Financial Services Agency and central bank, based on estimates about the impact a failure would have on the global financial system, according to Mainichi newspaper.
“On the one hand, it made us proud, but on the other hand, of course, we’re aware of the responsibility,” [current lame duck CEO Josef] Ackermann said at an earnings press conference in February 2011 when asked about being deemed the world’s most systemically important bank.
I imagine that Japan’s Financial Services Agency was not ranking “most systemically important financial institution” with the intention of giving them a prize, but I do love that Ackermann took it that way. “Yay we were voted #1 most likely to blow up the Western financial system.” Read more »
Deutsche Bank Is Not Above Shuffling a Few Pieces of Paper To Keep Nosy Regulators From Demanding $20bn in New CapitalBy Matt Levine
Two things always worth talking about are bank regulation and path dependency so here’s this Journal story about Deutsche Bank that is like ooh-evil-Germans but also kind of meh:
Deutsche Bank AG changed the legal structure of its huge U.S. subsidiary to shield it from new regulations that would have required the German bank to pump new capital into the U.S. arm. … Taunus [the sub] — which at the end of last year had about $354 billion of assets and 8,652 employees, making it one of the largest U.S. banking companies — won’t have to comply with a provision of the U.S.’s Dodd-Frank regulatory-overhaul law that essentially forces the local arms of non-U.S. banks to meet the same capital requirements that American banks face.
Deutsche Bank has two main U.S. units. One is a trust company that has a banking license and must adhere to stringent U.S. bank-safety rules. The other is an investment-banking arm that isn’t technically a bank. Until recently, both units were housed under Taunus, which didn’t need to meet U.S. capital requirements, thanks to a waiver provided by the Fed a decade ago.
A provision of the Dodd-Frank Act, designed to prevent a repeat of the financial crisis, repealed the law under which that waiver and others were granted. That change was going to require Deutsche Bank to infuse Taunus, which for years operated with thin capital cushions, with what executives feared could be as much as $20 billion, according to people familiar with the matter.
Deutsche Bank responded last month by moving the trust company out of Taunus, named for a mountain range near Frankfurt. That means Taunus is no longer a bank-holding company and won’t have to comply with the new, tougher capital rules, even though Taunus still houses Deutsche Bank’s U.S. investment bank.
Instead it will be SEC regulated, like … well, every other US holding company that houses only an investment bank and not a bank bank. Bank. The bank bank subsidiary, on the other hand, will be owned directly by Deutsche Bank, which as the Journal previously explained gets to follow German but not US capital regulation. The bank sub will be a US trust company, so not quite true that it won’t have to meet the same capital requirements that American banks face. It will have to meet the same capital requirements that American banks face. Its just that its holding company will not be a US bank holding company, but will rather be a German thing regulated by Germans. Read more »
Deutsche Bank Treasures Its Reputation (For Making Economically Questionable Decisions) So Much That It Turned Down Free MoneyBy Matt Levine
You may have heard that some shit is going down in Europe. This came as some surprise to me since I stopped paying attention to that whole continent when the banks were all fixed in December. What could possibly go wrong? I asked myself loudly, to drown out all the “Greece talks near [success / catastrophe]” I’d otherwise be hearing. Well, for one thing, some of those banks actually refused to be fixed just because they were, and I hope I’m representing their claims accurately here, “not broken”:
“The fact that we have never taken any money from the government has made us, from a reputation point of view, so attractive with so many clients in the world that we would be very reluctant to give that up,” said Josef Ackermann, Deutsche Bank’s chief executive, explaining to analysts last week why the German lender didn’t borrow from the ECB.
Mr. Ackermann said Deutsche Bank still is scarred from its experience borrowing from the Federal Reserve in the first phase of the financial crisis in 2008. U.S. regulators encouraged banks to borrow under the cloak of promised confidentiality, but when the banks’ identities were subsequently disclosed by the Fed, the recipients were dubbed bailout recipients. “We learned a lesson,” Mr. Ackermann said.
It’s a valuable lesson. While once government largesse was free and secret, we’ve recently seen all sorts of strings being attached to bailouts, from minor inconveniences like “if you take our bailout we’ll make you pay off (some of) your debts” to game-changing restrictions like “I don’t want my tax dollars to be used for some sort of pro-gay stunt like this.”* Read more »
Today is bonus communication day at DB and while there are no specifics to be had just yet, apparently those hoping their decision to do the bare minimum last year would be handsomely rewarded were in for a disappointment. Read more »
“Deutsche bonus structure for Associates-Directors was revealed today:
*Up to eur50, all cash.
*Eur50-100, 70% deferred. Yes…
*Eur100+, 85% deferred.”
Carrick Mollenkamp is a great reporter who currently owns one of my favorite niches: finding insider moles to bring to light behavior at big financial companies that is ambiguously squicky. Today he’s got one that’s close to my heart, and here it is: a junior analyst at Deutsche Bank disagreed about a technical modeling question with his VP.
At a time when mortgage-backed securities were imploding and customers were fleeing the market, a junior analyst at Deutsche Bank AG protested when he was asked to alter the numbers in a spreadsheet to make a Deutsche security look less risky to ratings agencies, according to a person with knowledge of the matter.
The analyst, this person said, was asked by a mid-level Deutsche executive in late 2007 to make it appear that the investment would produce more cash than the bank actually expected at certain time points. …
[Ajit] Jain had studied at the Indian Institute of Technology in New Delhi and joined Deutsche in June 2006, according to employment records kept by the Financial Industry Regulatory Authority. He joined the New York office in September 2007, when the CDO Group was struggling to find investors.
Within a short time of his arrival, according to three people familiar with the matter, Jain raised questions about whether spreadsheets were being improperly altered. His complaints went to senior levels within Deutsche, including its legal and compliance departments, according to people familiar with the matter.
These spreadsheets were cash flow models for some of Deutsche’s CDO deals, which Deutsche gave to ratings agencies to rate those CDOs. They were complicated. How complicated? Here is a lovely detail: Read more »
Cuts are said to have gone down over the past two days. Read more »