Deutsche Bank

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 »

  • 25 Jun 2012 at 11:44 AM

Layoffs Watch ’12: Asia

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 »

  • 31 May 2012 at 6:05 PM

Layoffs Watch ’12? Deutsche Bank?

Mr. Jain, 49 years old, played a central role in building Deutsche Bank’s investment-banking business over nearly two decades as it reached beyond its staid commercial-banking roots. Investment banking now generates about 70% of the overall bank’s profits most quarters. He takes the [CEO] post at a time when many analysts consider the lender one of the least well capitalized among its investment-banking peers. The bank also faces a litany of legal problems on both sides of the Atlantic. Those who know Mr. Jain say he will cut the fat at the banking giant, sell businesses that don’t meet profit goals and shutter others. [WSJ]

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 »

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 »

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 »

  • 07 Feb 2012 at 2:50 PM

Bonus Watch ’12: Deutsche Bank

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 »