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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ThirteenthFloor's picture

Eventually leaving the US all alone standing in a pile of Federal Reserve Notes shit.

gh0atrider's picture

Looks like the rats are really starting to turn on one another.

Let's bring this mf'er down already!

espirit's picture

Here I am actually concurring with gh0atrider, it's a small world afterall.

dontgoforit's picture

Yeah, me to, kind of.  But this cannot end well for any of us.  Greedy bastards.

TungstenBars's picture

It will end worse for them. I don't think they can even imagine..

IndyPat's picture

Compare Germany's Free Shit Army with ours and tell me you still feel that way.

Tall Tom's picture

The whole German Society is a Free Shit Army. It is a socialist state. The citizens are heavily taxed.


They are Cradle to Grave. When they go down it will impact their citizens more as the Nanny State will no longer be ther to plan for their needs.


Here it is not as endemic...yet.

ThirteenthFloor's picture

Rainman -> There is more to this story here large chunk Derivs. booking came from the Deutsche Bank's assorption of Banker's Trust.  Banker's Trust was a building demolished across the street from the WTC.

The web corrupt bankers weave.

NOTW777's picture

whats next - flight embargo?

Zero Govt's picture

the morons in Govt think nothing of shuttering other peoples international trade with sanctions ...but never a budget cut to Govt revenues

John Kerry just threw $2bn at Iran after the US Govt fined foreign banks billions for dealing with Iran in US Dollars

the US Govt has got serious senile dementia ...they don't know their arses from their elbows anymore

oudinot's picture

I agree wholeheatedly.  Then hypocrisy is breathtaking.

Further, Europeans, Europe always took shit from the States beecause for over 60 years she was the golden goose.


Now she's taking from Europe-billion dollar fines on banks and now America is the ugly duckling.  Europe will move East and Far East because that is where the golden goose is now.


Americans, most Americans don't understand this.

firstdivision's picture

Exposing DB and causing their positions to sour will bring the US economy to a total halt, and even Yellen couldn't wallpaper over it. To me, it's Yellen holding a gun to her own head treating to pull the trigger.

TheReplacement's picture

From the western perspective, Russia is the target.  TPTB are doing everything they can to peel away Russian vassals and close in around her border.  Considering Russia has nukes, not a great idea.

From the Russian perspective, Europe is the target.  Russia is playing cool while preparing to swoop in and scoop up Europe once the implosion begins.  Considering Europe is dependent on Russian fuels and the west is bankrupt, not a bad idea.



Keyser's picture

Vlad hit the nail on the head today when he called out the globalists and their dream of a new world order... The human race is not ready for 100% integration of the races / species... We are not that far removed from swinging in the trees, are too territorial and have a natural instinct to kill anything that we do not understand or fear... If we have to reduce population, let the fucking culling begin... Perhaps that is the logical outcome anyway, irregardless of motive or reason... 


AnAnonymous's picture

Today, this is 'americans' vs 'americans'.

There is no German miracle other than being connected to a part of the world that has not been engulfed in the 'american' consumption pattern yet, due to the protection given by big poppa commie.

Neither Russia or Germany are the targets: 'americans' think in terms of groups and for 'americans', the group is all.

pods's picture

Wow, for opining about how much americans can only think in terms of groups you certainly paint with a broad brush.


TheFourthStooge-ing's picture

Projection is definitively a nasty thing for 'AnAnonymystical' guros. In such perceptations, a thing can be and can not be.

Powder to the eyes, a mystery to us all.

Yen Cross's picture

 Chinism + 250% debt to gdp = AnAnonymous getting his "river pig" rations increased by one testicle, this month.

 AnAnonymous....Village idiot party puppet


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lasvegaspersona's picture

Is there a way to automatically down vote AA's comments? all of em?

r00t61's picture

I miss the days of ZH when a posting that received -50 arrows would automatically be "nuked into oblivion" and hidden from view.

I also miss the arithmetic CAPTCHAs.

sgt_doom's picture

Saaaay....wasn't Ghadaffi, just before he was ousted then killed, trying to form an African Union to switch to only trading their oil for gold, especially to America, and to stop tradining US dollars?

Curious. . .

Keyser's picture

Yep, same as Saddam in Iraq and also Iran... Funny how a country becomes a terrorist nation when they decide to ditch the petrodollar... Was quite unhealthy for Saddam Hussein and Ghadaffi...

IndyPat's picture

Saddam and Ghaddafi ain't Vlad.

Now that China and Russia are getting cozy, all they need to do is sooth Angela a bit and it won't be long until the rest of EUR....and the world follows...leaving us with our dicks in our hands.

TeethVillage88s's picture

More Cynical than you I guess.

I think Bankers are probably like Politicians with these public actions even if they cost a lot of money & business.

The bankers might actually be mad at each other, but would think it is just a game to them. They probably eat lunch together, tell jokes, and even visit the same clubs together.

Looks more like they are setting up a Divide between the USA & Europe. Maybe to set up the exit from the US Dollar.

But BASEL III is coming up and it is a good time to Clean up the Corruption, increase Reserves.

As for Russia, the Oil Business & the Oil is the Target, plus if we suck a country into NATO then we get Military Strategic Positioning.

Max Damage's picture

Merkel should tell the USA to fuck off until all its gold is returned to it

effendi's picture

blabam, I don't agree that Germany and Russia are the targets.

Might not the American sheeple be the targets? The overleveraged FED is carrying trillions in toxic debt and they have engaged in illegal practices. If (when) the FED blows up then the sheeple will want their heads on pikes and politicians (to cover their own corrupt arses) will feed them to the corrupt legal system to do 150 years with Bernie Madoff.

If the FED can get some big European banks to collapse first however then they can blame the foreign banks for collapsing the world economy (we tried so hard to stop the mess but the Krauts, the Frogs and the Ruskies are to blame). Then the US executives of foreign banks can do the perp walk to satiate the publics blood lust, not FED banksters.


IndyPat's picture

Don't sell me short.

My burning lust for the blood of Bankers, Corp Execs and most definitely Politicians knows NO bounds.

Or boarders.

I'm a Minister of Revenge praying for a red tide of retribution and I am legion.

PGR88's picture

Just trying to "encourage" Germany to get on board with Russia sanctions....

jubber's picture

Gold reacts and falls further, S&P hits new record high LOL

what's that smell's picture

divide and conquer as played by two-year-old dirty-in-the-diaper psychopaths.

dudes! this is a serious mental breakdown.

if you value yourself and your family and your friends, EXIT NOW.

TungstenBars's picture

who is gonna et to man the guillotines?

Many including TPTB seem to think this will all end in a huge climax; however, as always, it will end in a huge build up until the plebs have had enough and the heads start rolling. No world climax.

Keyser's picture

Yeah, the guy behind the curtian is fucking with the levers on derivatives again... 

lasvegaspersona's picture


the paper gold price (and yes for now it is the only price) fell.

Gold in todays market is just like paper. it is fractionally reserved and as long as it works your physical is held down too.

Think of physical gold as a call option on tomorrows wealth..it is.

When the dollar collapses the last thing you will want is an even bigger pile of dollars.

Pheonyte's picture

Gee, I wonder what a similar scrunity of the Fed's balance sheet would reveal?

wallstreetaposteriori's picture

That Ja-YO has a penis and Big Ben has a vagina.

Urban Redneck's picture

Which Balance Sheet?

The FED also has a longstanding little gimmick where equity/ownership of certain SPVs (often named "Maiden Lane XXX") gets offloaded/diluted to member banks, which could yield some interesting avalanche flows if they ever stop marking-to-myth...

falak pema's picture

when thieves fall out.

JohnG's picture

Pot - meet kettle.

Dr. Engali's picture

So I guess the fact that BofA moved 53 trillion in derivatives over to the bank holding side means nothing...... Got it:


Space Animatoltipap's picture

Indeed, when you properly report there is no problem whatsoever. It's about proces not content. Like in any communistic country ...

Ban KKiller's picture

BofA, known world wide for having idiots as attorneys, are always up to some sort of massive mistake based on greed and the "I won't be here when this shit unwinds" syndrome. 

I fight them in court all the time. Here is the deal....their attorneys are idiots, they can only attack and are beaten back....then they hide or make motions to withdraw, their writings are by high schoolers, at best, and EVERYTHING THEY PUT IN A MOTION IS A LIE AS WELL AS ALL THEIR AFFIDAVITS. So, knowing that, it is fun to fuck them over. They don't care....just billable hours.  The judges are seeing the truth and they are getting pissed....great times!

Perfecthedge's picture

I have not even read the (no doubt) excellent article from the Tylers, but seeing the title I can help you out.  This is what they mean:


Not sanctioning Russia? Here, stick this up your ass Germany!

Spitzer's picture

I read the article and yeah, you are entirely correct.

They need to make a new Team America movie. "There you go Germany, hedge that you fucking pricks !"

MsCreant's picture

But is it not M.A.D.? How can you do this without spinning breathlessly in the derivative unwind until you puke, yourself? Everything is too interwoven in a financial hypertexted n-dimensional matrix. The Fed can't hedge for that event. This threat is a bluff.

Do you remember that scene in "Blazing Saddles" where the black cowboy puts the gun to his own head and says "Don't move or the nigger gets it?"  This is the same situation. Funny in a comedy, suicidal in real life.

ThroxxOfVron's picture

"But is it not M.A.D.? How can you do this without spinning breathlessly in the derivative unwind until you puke, yourself? Everything is too interwoven in a financial hypertexted n-dimensional matrix. The Fed can't hedge for that event. This threat is a bluff."


What IF The FED has hedged the FED Member Banks?  

What IF The FED has sold derivatives to the FED Memeber Banks that would pay out in the event of a systemic shock suck as an interest rate spike or an interbank liability default on other derivatives exposure?  

Think AIG/Maiden Lane within the Primary Dealer/Treasury Complex...

MsCreant's picture

What of counter party risk? How do you hedge that? If everyone is in unwind, how can you know you will get paid?

I hear what you are saying, it sure as shit looks like they are marching all us lemmings to the cliff, but all prior bailouts depended on the dollar being something that everyone believed in. The bailouts work if dollars are real. If the dollar itself fails, you can't print the bailout.

I know I am missing something...

IndyPat's picture

You are dead on. It's M.A.D. and if the Fed thinks it has a hedge bunker to hide under, they would be idiots and they are not. Evil and greedy, yes. Idiots, no.
They know that any fire they set in Europe will burn their shit down, too.

This is a laughable bluff.

ThroxxOfVron's picture

1. The Taxes owed to the United States Gov't are denominated in U.S. Dollars; but, Federal Reserve Notes denominated in the U.S. Dollar unit of account are also presently accepted.  

There are actually very few U.S. Dollars in existence. 


2. Then there are the U.S. Treasury Notes and Bonds: not FRN. Some might argue that these are simply rather large denomination notes with associated coupon...  

WHO has gathered around one third of all these outstanding?  -The FED.  Member Banks hold even more.


3. Forget Individuals and Small Businesses for a moment: there is a huge incentive for Large Corporations to maintain timely payments of quarterly W2 remittances.  

It keeps the IRS from walking in with guns and lock-smiths...

As long as the I.R.S. accepts Dollars/FRN *& NOTHING ELSE* I don't see how the currency can be destroyed -at least domestically.