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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Winston Churchill's picture

Don't shoot or the nigga gets it.

q99x2's picture

Well how the hell else did they expect them to conquer Europe?

You want a new world order you better be prepared to pay the Germans.

layman_please's picture

NWO needs a global crash to become the saviour of the world, so all this is scripted one way or another.

WTFUD's picture

But it's all right now, in fact, it's a gas. . .i'm jumpin' Jack Lew it's a gas gas ass. . .GET STONED

maneco's picture

Check page 29 on this pdf file report by the Office of Comptroller of the Currency. JPM exposure to derivatives was $71.8 trillion as of September 30th, 2013, Citibank's exposure was $62.9 trillion and Goldman Sachs' exposure was $47.6 trillion. Will the Fed slam these three banks too? Top 3 US banks exposure to derivatives is $182.3 trillion while US GDP is $16.7 trillion so that is 10.9 times US GDP. Granted that DB's leverage to German GDP is 20 times but relative to Eurozone GDP it's 5.69.


q99x2's picture

Once this NWO boondoggle starts requiring skin in the game and the loonatics that conspired to bring it about start believing what the opposition is saying the whole freakin thing will turn against them. Everyone will be against the perpetrators. They will be sitting ducks for the entire world to take down.


BullyBearish's picture

Let me see...the NY FED vs Germany...just like WWII all over again, except backwards

giggler321's picture

Well if you knew you were not going to get your yellow property back - what would you do?  spend away using the currency they trade the yellow in, knowing it'll blow up?

Herdee's picture

Russia doesn't trade that much with the U.S. so it's no big deal really for U.S. sanctions.Europe can't afford the cost right now,it'll put them further into recession.Not that Obama,Cameron and little puppet Harper care.Russia's got other directions to go.They know that Europe is flat broke and the Ukrainian winter this year will be a complete unemployment disaster.When Russia is pushed into the corner,watch out because Europe's going bust and Russia knows it.Europe needs the land link by rail across Russia in order to make it more efficient and China who is Europe's biggest trading partner is siding with Russia.If you want investment today,you keep the Chinese happy not the Americans.

WhyWait's picture

Angela, you need to face the fact that DeutscheBank is toast like the rest of them and the end can only be postponed.  Caving to the Fed on Russia only buys six months or a year, so in weighing the cost, ask what is six months is worth.  Maybe it's time to quietly call their bluff and make clear you're ready to pull the rug out and let the world system crash and step in to nationalize DB after it implodes, pick up the pieces, start issuing DeutscheMarks directly and trading with the world using DM's, Franks, Roubles, Yuan, Yen - and Iranian Rial.  

They'll either back down or try to remove you.  Are you ready for them?  Will six more months to get ready be worth the cost?

You're a physicist. So you know that trying to follw the details of a chaotic state transition can be a waste of time, and what you need most to be clear about is the initial and final state, as best you can discern them.  You're a statesman and politician, and you know how the experience of political forces can override your understanding and leave you doing things such that you don't even recognize yourself in.  

This is a moment to really get a grip and do the hard thing, the resolve buried in your heart, to go against everything expected and customary, comfortable and easy, and call your people to battle, a moment where an effort that might in another time be useless could be enough to pull clear of the rocks and unlock the transition.

DB, or Germany.  Time to  choose.


auntiesocial's picture

when the music stops, guess who gets chairs?


hint: it ain't the average schmuck.

GrinandBearit's picture

The stock market doesn't care. 

If a nuclear bomb was dropped on a major US city, the market would be green the next day.

Comte d'herblay's picture

My very good friend, Budgie Twitters, told me yesterday that I have to stop reading the blogs that run around like Chicken Little with their constant warnings about Risk.

He says that in order to get a grasp on how things actually are in the real world one has to step back as it were, from the telescope, and look without any visual aids at the Cosmos, at night.

From our vantage point, in some cases trillions of miles into deep space, we can see an uncommonly gorgeous order that confounds all but the most organized sock drawer of the biggest OCD patient on earth. 

Howsomever, Budgie says, that in reality that 'order' we see is actually a trillion billions of explosions that occurred for sure,  in many cases quite long b 4 he was born in 2006.

And yet...and yet....who can deny that 99.9% of that vision in the night sky appears fixed in place like the image on a photograph. The Twins, Gemini, Scorpio never ever change, boringly moving across the heavens on the same trajectory for over a year now, you can set your watch by their travels. 

So I have stopped listening to the Risk On disasters that are predicted and write it off to those Bloggers who need to believe in something dramatically pessimistic in order to get out of bed in the morning. 

J B T Fing D.   S T Fing S.

SickDollar's picture

Is this world for real ????????

SickDollar's picture

Is this world for real ????????

Atomizer's picture

But, but, without a debt driven society. How will our Central Bankers, G20, NGO'S, and puppet installed political minions make money from the peasants? 

blindman's picture

they will create a market for derivatives
on a new exchange in a galaxy, far, far away;
then they will jack up the price you must pay.

Atomizer's picture

Double post. Time to move to another IP device. Battery shot.

Latitude25's picture

Don't worry sheep.  Only non US banks have large derivatives exposure.

Atomizer's picture

Can you provide a chart to substantiate your claims?

Latitude25's picture

Who needs data?  It's just that warm fuzzy feeling I get when I think about US banks.  Besides, the MSM says , "don't worry".

Atomizer's picture

Fair enough, miss read your post. My apologies.

Yen Cross's picture

  Seriously! Are you fucking kidding me?

"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."

   Those "U.S. banking arms" were just fine when Greek, Spanish, Portuguese, Italian, French > bonds were exploding in YIELD you bullshitting " pied piper" of Maiden Lane !

  Roll the Guillotines Bitchez

Atomizer's picture

Time for another round of banking stress test. 

/lol. Below 10% battery. Have to run. 

Yen Cross's picture

 Hey Atomizer... Expect "reverse repos" to triple long before month or quarter end.  ;-)

Atomizer's picture

Shhhh. don't yell fire. Winks.

ThroxxOfVron's picture

The Reverse Repo amount for Q3 is going to rival if not dwarf the $700B TARP that scared the bejesus outta Everyone only 7 years ago...   

....& most People will have no fucking clue that it is even happening...

MsCreant's picture

It will be when supply chains fail, nothing less.

kchrisc's picture

Based on what I am reading here and elsewhere, it sounds like derivatives are coming unwound and the banksters are playing a game of Hot-Potato before the timer goes off--None of them want to be holding the shit-grenade when it goes off.

MsCreant's picture

New technology. Who needs a fan anymore?

Ness.'s picture

Derivatives failure will be the lube that ends up turning this whole shitshow into a HFT girl on girl fist fuck to the death.

Bidless, motherfuckers. It's going bidless.  

UrbanDic - Bidless = no buyers

hot sauce technician's picture

" Deutsche has a total derivative exposure that amounts to €55 trillion or just about $75 trillion and...is about 100 times greater than the €522 billion in deposits the bank has"

What can possibly go wrong?

esum's picture

F R A U D ..... garganttuan fraud.... ok face the corner for the rest of today and write 1000 times before you go home.... I am a bad bank... ok dismissed 

MsCreant's picture

That is VERY FUCKING FUNNY. Nice word play.

Edit: "Who da bad bank, who da bad bank?"

This tiff with Angie could be one hell of a show to give our ally a much needed injection and to pay off some gold debt. (I know, my tin hat is too tight).

I am not a computer geek, can you use something like Torrent, to print?

esum's picture

AIG AIG somebody get AIG

redwater's picture

Guillotines are too quick.

We need a Hunger Games for bankers.

Put them on an island, attach GoPro's on their heads and make them kill each other.


IndyPat's picture

Fuck that.

I want me some.

SolutionRS's picture

Agreed if financial information from a top tier bank isn't so reliable than where does it leave us? However slightly irrelevant and misleading to comment on the gross notional exposure of DB, I'd imagine the net MTM is only a few % of that. Also the comment of KPMG identifying "deficiencies" in the way the bank's U.S. entities were reporting financial data in 2013 does not not at all imply that the "€55 trillion in derivatives are actually completely fabricated". No need really to obfuscate an important point with misleading info; the report from the Fed was enough by itself.

One eyed man's picture

Poor DB! To be accused of lax accounting by the NY Fed which not too long ago was headed by none other than Turbo Timmy who couldn't even fill out his tax returns correctly must be very hurtful indeed.

Many times lax accounting indicates underlying losses which the company is trying not to recognize. With 150:1 leverage, what could go wrong?

Ban KKiller's picture

How is there risk when the profits are private and the losses are public? I mean isn't this a fascist oligarchy or not? 

Banksters are honest now...Dodd-Frank and all. Well, OK, that is a lie.  Nationstar Mortage,LLC? Fuck you too!

1stepcloser's picture

This reminds me of who smelt it, dealt it

Sorry_about_Dresden's picture



rosiescenario's picture

Got to wonder who is holding the derivatives and how many times they have been re-hypothecated?

nathan1234's picture

Hello Yellen & your Masters

Please let the world audit you before you open your mouth again.

Or just wind up and disappear

A fall out between thieves does not concern us. You have been part of all that is wrong