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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Latitude25's picture

i.e.  suicide yourselves with a nail gun

Democratic koolaid's picture

http://www.bloomberg.com/news/2011-02-09/nyse-deutsche-boerse-are-said-to-be-in-advanced-talks-to-merge-exchanges.html 

NYX purchased in 2011, what did they expect when this hà^^end?  That they would be socialy responsible running things?

Nexus789's picture

Attacking non US banks in this way is like playing with matches in shed of dynamite....what could possibly go wrong.

Grouchy Marx's picture

Coming from the organization that took the dollar off the gold standard, thus creating the world's biggest ever con-game, this criticism of DB is absurdly comical.

Aussiekiwi's picture

'tell the NY Fed that perhaps its own 150x leverage is just a little more worthy of attention.'

Don't be silly, they can just print their way out if anything goes wrong, nothing to see here.

Atomizer's picture

At least the FED will magically meet 2% GDP growth by printing its own monetary petrodollar debt. Someone order me a free GM Chevy Volt so it can detonate in my garage. I then can be fined on a carbon tax emission law. Starting a fire exceeds all CO2 mandates.

/sarc

Son of Captain Nemo's picture

Looks like someones jealous! Or should I say restless and panicked about the prospect of losing the EU to a BRIC!!!

Doofus's picture

"That's not real money though.  Those are just digits on a computer screen..."

 

Sincerely, 

 

Barney Frank

 

ramacers's picture

think of it - 75 trillion!. if just 10% has to be eaten in the end, that's 7.5 trllion. what madness.! 

yogibear's picture

Gernany needs to demand it's gold back right now from William Dudley and the NY Fed.

yogibear's picture

The EU should join the BRICS. That would really mess up Barry and the NY Fed. Show that middle finger to Barry and the Federal Reserve.

Duffy Duck's picture

hey man - it's only notional.... 

hedgiex's picture

The issue is that DB today has no talents viz GS, JPM & MS to handle the explosives. DB is a haven for the CEO and his cronies to take higher risks to justify their compensations. In trading and capital markets, it has no superior products and its much vaunted footprint in Asia is just another show in town.  Somewhat like the AIG unit in London pre-crisis, it is giving free lunches to its competitors.

What is good with DB is that it will have the bailout safety net from German taxpayers ? It should be the German Regulators that should be worried and not the FED.

hedgiex's picture

The issue is that DB today has no talents viz GS, JPM & MS to handle the explosives. DB is a haven for the CEO and his cronies to take higher risks to justify their compensations. In trading and capital markets, it has no superior products and its much vaunted footprint in Asia is just another show in town.  Somewhat like the AIG unit in London pre-crisis, it is giving free lunches to its competitors.

What is good with DB is that it will have the bailout safety net from German taxpayers ? It should be the German Regulators that should be worried and not the FED.

Aussiekiwi's picture

55 Trillion in derivitives, O MY GOD!, Yellens falling behind, better turn on the turbo on the printing press.

disabledvet's picture

This is a truly AWESOME display of American power.

Not saying I agree with it...but the USA is leaving nothing on the table here.

goldsansstandard's picture

This is a Minsky moment. Reminds me when the first crack appeared in the sub prime dam. It was summer 07 and one big bank sued another other over some second derivitive sub prime fund. It was the first time the SHTF publicly.
This might be the string that unravels the fabric that holds the house of cards together.

The neocons who run the O are proven economic idiots. Price controls on gasoline in occupied Iraq proved that.

They Arrogance and stupidity is a bad combination.

the world is assuming the possition.

eishund's picture

29x leveraged. What will happen IF rates ever go up by a teeny weeny bit.....oh wait. rates can only go into deep negative from now on.

jubber's picture

LOL DAX up 100 points overnight, Deutsche down small Espirito UP this market don't give a shit, buy everything.

Kina's picture

 

 

 

QE I

QE II

QE III

QED

QE IV

QEF

 

insect0man's picture

Douchebank- the same Douchebank that was Argent/Ameriquest Mortgage's primary warehouse lender?

http://www.google.com/?gws_rd=ssl#q=argent+securities+deutsche+bank

"vee haven't changed der mortgage industry, vee have REVOLUTIONIZED it!"

Uhuh. Nothing to see there, mooooove along into the NyLon cattle cars little dogies.