NY Fed Slams Deutsche Bank (And Its €55 Trillion In Derivatives): Accuses It Of "Significant Operational Risk"

Tyler Durden's picture

First it was French BNP that was punished with a $9 billion legal fee after France refused to cancel the Mistral warship shipment to Russia (which promptly led to French National Bank head Christian Noyer to warn that the days of the USD as a reserve currency are numbered), and now moments ago, none other than the 150x-levered NY Fed tapped Angela Merkel on the shoulder with a polite reminder to vote "Yes" on the next, "Level-3" round of Russia sanctions when it revealed, via the WSJ, that "Deutsche Bank's giant U.S. operations suffer from a litany of serious problems, including shoddy financial reporting, inadequate auditing and oversight and weak technology systems."

What could possibly go wrong? Well... this. Recall that as we have shown for two years in a row, Deutsche has a total derivative exposure that amounts to €55 trillion or just about $75 trillion. That's a trillion with a T, and is about 100 times greater than the €522 billion in deposits the bank has. It is also 5x greater than the GDP of Europe and more or less the same as the GDP of... the world.


More from WSJ:

In a letter to Deutsche Bank executives last December, a senior official with the New York Fed wrote that financial reports produced by some of the bank's U.S. arms "are of low quality, inaccurate and unreliable. The size and breadth of errors strongly suggest that the firm's entire U.S. regulatory reporting structure requires wide-ranging remedial action."


The criticism from the New York Fed represents a sharp rebuke to one of the world's biggest banks, and it comes at a time when federal regulators say they are increasingly focused on the health of overseas lenders with substantial U.S. operations.


The Dec. 11 letter, excerpts of which were reviewed by the Journal, said Deutsche Bank had made "no progress" at fixing previously identified problems. It said examiners found "material errors and poor data integrity" in its U.S. entities' public filings, which are used by regulators, economists and investors to evaluate its operations.


The shortcomings amount to a "systemic breakdown" and "expose the firm to significant operational risk and misstated regulatory reports," said the letter from Daniel Muccia, a New York Fed senior vice president responsible for supervising Deutsche Bank.




Deutsche Bank's external auditor, KPMG LLP, also identified "deficiencies" in the way the bank's U.S. entities were reporting financial data in 2013, according to a Deutsche Bank email reviewed by the Journal.

Oh wait, so those €55 trillion in derivatives are actually completely fabricated? Well if that doesn't send the S&P 500 limit up nothing will.

DB's response is the generic one already attempted by that other permacriminal bank, Barclays, which hired a few hundred compliance people after it was revealed that the British firm was manipulating and rigging pretty much every product and market it was involved in.

"We have been working diligently to further strengthen our systems and controls and are committed to being best in class," a Deutsche Bank spokesman said Tuesday. As part of this, he said, the bank is spending €1 billion globally and appointing 1,300 people, including about 500 compliance, risk and technology employees in the U.S. Mr. Muccia declined to comment.

Sadly for now what this latest Pandora's box means is that confidence in Europe's insolvent banks just crashed with a bang once again, not that it would be reflected in the stock's rigged price of course: rigged most likely by Deutsche Bank among other of course.

The New York Fed's concerns also pose a challenge for Deutsche Bank's longtime finance chief, Stefan Krause, who is ultimately responsible for the company's financial figures and has been spearheading efforts to improve the quality of the bank's reporting.


The concerns from regulators strike at the heart of an issue plaguing many of the world's big banks: Some investors lack confidence in the integrity of their numbers. Such fears have been especially prevalent in Europe.

Then again, none of DB's numbers actually matter: if the banks needs a bailout the Fed will promptly step in, and today's advisory has one simple end point, which happens to be the same as the recent BNP $9 billion fine - don't even dare to side with Putin over the US. Because you sure have big bank over there Germany... It would be a pity if the NY Fed i) revealed just how insolvent it truly was and ii) decided not to bail it out subsequently.

* * *

As for Deutsche Bank's response perhaps the simplest and most effective one would be for the Frankfurt megabank to tell the NY Fed that perhaps its own 150x leverage is just a little more worthy of attention.

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blabam's picture

So we can all agree.... Germany and Russia are the targets. 

Pladizow's picture

While they turn a blind eye to JPM's book?

Manthong's picture

..almost went into simultaneous explosive diarrhea and projectile vomiting on this headline.

wallstreetaposteriori's picture

Well atleast if DB blows up, we will never have to see that uber-permabull Chief econmissss Joe Lavorgna.


I mean really, whats up with afro?...  1980 called Joe and it wants it hair back.

espirit's picture

Hot fuckin' potato game.

You in or out?

pods's picture

This is the Fed's backdoor way of trying to validate that these are actual bets that will have to be paid out if things go boom.

Seeing this sort of thing reminds me of South Park, or Force Majeure.

Let's be honest, the world is a ponzi, and the New York Fed is knee deep in bullshit.


sodbuster's picture

Hypocrisy reigns supreme in the USSA. This is almost as bad as Obummer accusing the Russians of providing the Ukaine separatists with arms. We've never done that, have we??

BaBaBouy's picture


Know Where Your PHYS GOLD Is, GERMANY ???????????????

Keyser's picture

Too funny, JPM has over $75 trillion USD on their derivatives books and you don't see the NY Fed slapping their wrist... 


BaBaBouy's picture

Good Ole US Dollars Reserve Currency... At It Again.................

""Resistance Is Futile, You Will Be DOLLAR-WHIPPED Into Assimilation""

CClarity's picture

Buh buh butttt I thought the Fed is apolitical ....

/sarc off

Or if needing to use more Russian in these times "Sarkoff!"

Stackers's picture

Put in other words, DB only has to take a 1% loss on its derivatives book to wipeout all depositor equity.

DaveyJones's picture

pot calling the tar heroin kettle black

Keyser's picture

Let's see how how quickly this accelerates the signing of bilateral currency swaps with Yuan and how quickly Germany abandons the USD...


Elvis the Pelvis's picture

Germany won't abandon the USD.  Those Nazis are very much our bitches.  Bitchez.

lasvegaspersona's picture


can't agree..zee Germans are part of a competing system...the Euro...they will support the dollar until they don't.

They will smile at us until they see we are done, then they will smile a little sympathetically....then we are on our own...with no real friends.

Panafrican Funktron Robot's picture

DB goes under if the 10 year UST note is above 3% yield for more than about a month or so.  Their IR swap risk is through the damn roof.  And we're talking, the roof of the motherfucking sky.

kill switch's picture

BRICS Hve another idea!!!muhahahahahahahaha

dontgoforit's picture

Isn't that like napalm calling kerosene explosive?

Blankenstein's picture

Don't forget BofA with $75 trillion. (2011)

Bank of America’s holding company -- the parent of both the retail bank and the Merrill Lynch securities unit -- held almost $75 trillion of derivatives at the end of June, according to data compiled by the OCC. About $53 trillion, or 71 percent, were within Bank of America NA, according to the data, which represent the notional values of the trades.

That compares with JPMorgan’s deposit-taking entity, JPMorgan Chase Bank NA, which contained 99 percent of the New York-based firm’s $79 trillion of notional derivatives, the OCC data show.



Hal n back's picture

JPM has cleaned up its act--it only has 68 trillion of derivatives. But I guess that's  like being a little pregnant

SilverDOG's picture




Dead on.

I can see da FED, and it is saying "Are you talking to me?"

"I said, are yoouu talking to ME?"

Ponzi guilt leveraging. Easy for the ONE who has the largest military and world currency 

jammed in its pistol belt. 


Shad_ow's picture

"Let's be honest, the world is a ponzi, and the New York Fed is knee deep in bullshit."

So on it was worth repeating.

Keyser's picture

Yeah, but are they stupid enough to knock the legs out from under the DB derivatives book for political reasons? Oh wait, never mind... 


Killer the Buzzard's picture

Someone is seriously pissed about Merkel's pivot to the east.

Carpenter1's picture

Just another false narrative. The FED board pretends to have internal debate to create the illusion of accountability, CB's and big banks play the same games.

If it's said and done publicly, it's part of the script.

Tall Tom's picture

Listening to David Morgan?




He is right about that.

strannick's picture

Europe can choose economic growth with Russia or financial collapse with America.

IndyPat's picture

No shit, brother.
You know the gig is wearing thin when the NY FED thugs are trying to blow a raft of shit Germany's way over this.

Wow. We really know how to make friends, Not good.

If I were Merkel, I'd tell the NY Fed to suck my balls and go drink vodka and ride tigers with Vlad.

Bay of Pigs's picture

The William Dudley appears to be doing his best to speed up the USD implosion.

Tall Tom's picture

Merkel is not endowed with balls. To hell with the tigers.


She may go, drink Vodka, and ride on Vlad instead. Hopefully she gets off.




I agree that the shit is coming down and the assholes at the NY Fed are pretty damned pissed off that Germany was audacious enough to attempt to claim her Aurium...GOLD.


That is demonstrative that TRUST is wearing very THIN if it exists at all.


Without trust there can be NO CONFIDENCE. And when there is a complete LACK OF CONFIDENCE then...this is TRULY THE BEST PART...NO SARCASM...THE FUCKED UP GAME ENDS.


Hedge accordingly and all of my best wishes towards you.

Keyser's picture

Next they will be deemed the newest member of the axis of evil...

Dugald's picture

Next they will be deemed the newest member of the axis of evil...

That's odd I can hear a heavy droning noise.......now loud explosions..what? oh yes its 1940...


Scarlett's picture

you can see the propaganda against germany already; they even put german-speaking bad guys in videogames these days

nope-1004's picture

.... and Commerzbank?  lol.

The USSA must have phone tapped recordings of the Germany / Russia meetings.


Tao 4 the Show's picture

Now Merky wishes she had bailed already.

ebworthen's picture

Joe would say that 100X leverage was healthy and a sign of the strong economy.

ebworthen's picture


If interest rates go up it's even more bullish!

This economy cannot be stopped!  We're all gonna' get laid!


Bankster Kibble's picture

Yeah, because OUR gambling debts are better than THEIR gambling debts.

sodbuster's picture

Reminds me of this joke......

A husband and wife were having dinner at a very fine restaurant when this absolutely stunning young woman comes over to their table, gives the husband a big open-mouthed kiss, then says she'll see him later and walks away.
The wife glares at her husband and says "Who was that?" "Oh" replies the husband "she's my mistress".
"Well, that's the last straw" says the wife. "I've had enough, I want a divorce!"
"I can understand that" replies her husband "but remember, if we get a divorce it will mean no more shopping trips to Paris, no more wintering in Barbados, no more summers in Tuscany, no more Jaguar in the garage and no more yacht club. No more credit card and large Bank accounts. But.... The decision is all yours".
Just then, a mutual friend enters the restaurant with a gorgeous babe on his arm.
"Who's that woman with Tony?" asks the wife. "That's his mistress" says her husband. "Ours is prettier" she replies.

MidwestJester's picture

Cause when its their stuff, its shit. But when it's your shit, its stuff!

sonoftx's picture

Thanks for the informative links Pladizow.

Escrava Isaura's picture

The US will print, print, and print, then go to war. Marc Faber

Postal's picture

"go to war"? When did we stop?

Tall Tom's picture









Now off to war...