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Deutsche Bank Junior Trader Mistakenly Paid Hedge Fund Client $6 Billion In "Fat Finger" Error
Just a day after flailing, scandal-ridden Deutsche Bank shocked investors with the latest corporate restructuring, one which saw its investment bank split in two and which saw the termination of its IB-head Colin Fan, the FT reports of another epic snafu involving the German megabank (with over $60 trillion in derivatives), which this past summer mistakenly paid a hedge fund client $6 billion in a wire transfer "fat finger" (just shy of the $7 billion Q3 loss the bank preannounced two weeks ago).
According to the FT, the bank bank recovered the money from the US hedge fund the next day but, as it also notes, "the incident in its London-based forex team was an embarrassing blow for the bank, which is already under intense scrutiny from regulators."
The reason for the fat finger: some intern did not know the difference between net and gross:
The $6bn trade was processed by a junior member of the bank’s forex sales team in June while his boss was on holiday, according to two people familiar with the matter. Instead of processing a net value, the person processed a gross figure. This meant the trade had “too many zeroes”, said one of the people.
"Too many zeroes", as everyone knows, is the technical term for you royally fucked up.
The logical question is how not a single alarm went off before the "fat fingered" wire transfer was concluded: "the $6bn error raises questions about why it was not spotted under the bank’s “four eyes principle”, requiring every trade to be reviewed by another person before being processed."
The answer is that there simply is no supervision and no safeguards when it comes to such gargantuan sums of money flowing around.
The bank reported the incident to the US Federal Reserve, the European Central Bank and the UK Financial Conduct Authority. Two people familiar with the trade said such mistakes were surprisingly common, but ones of that size were rare. Deutsche declined to comment.
In other words, with one fell swoop, a "junior banker" could singlehandedly have pushed the bank into insolvency had he dealt with a hedge fund that was not quite as willing to part with the outsized "gain."
The news explains why after surging yesterday on the latest round of disappointing restructuring news, which for DB are now an anual event...
... DB's stock promptly plunged in what some may say was another "fat finger" but was clearly exasperated sellers saying goodbye to a bank which clearly has no internal controls.

The good news is that while "fat fingers" like that are "surprisingly common", DB's tens of trillions in gross derivatives are in sure hands.
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Meh, trade gets cancelled, what's the story?
The beneficiary could never hold on to the money in any legal fashion.
anyone have an FT subscription and/or know who the recipient was or why they needed the $6B short-term loan?
It wasn't the amount was wrong; DB decided to Not make another donation to the Clinton Global Initiative.
Betcha the guy's new moniker is "Hans"
have FT subscription. they don't say.
If the ricipient spends the money in good faith [for example, mistakenly thinks they won some prize money] and takes a round the world trip, they do not have to pay it back since they no longer have it. The sended of the money, the one who made the mistake, may still have to sue in Restituion to get the money back if the recipient still has it in some form [RE, for example].
If there are no controls on this type of thing, I am sure this was an isolated incident.
Jesus, the whole bank comes crashing down due to a clerk and "too many zeroes."
Morgan Stanley should have trotted out this line.
Well, we lost $7 billion, but $6 billion of that was due to "too many zeroes."
I have had my doubts about the intelligence of bankers, but damn.
I am now envisioning a room full of people wearing hockey helmets and holding crayons, if you catch my drift.
pods
"hockey helmets and holding crayons" LOL, I can picture the FED colouring away in a "group" session. Our best thinkers have drool running down their chins.
Pencil or sausage diameter on those crayons?
Some back office kid would have made that payment and they're in the back office for a reason.
Don't ever apply for a job operating a SWIFT or FEDLINE terminal.
I spend my days dealing with SWIFTs. They are terrible and barely fit for purpose.
On a side note what the fuck kind of credit system allows a 6 billion payment go. Why was an account allowed to go 6bn short? What kind of liquidity provisions would let 6bn go?
From experience no bank I've worked at would allow 6bn to move without risks agreement and handholding by processing.
To blame this on one guy is bullshit. They moved this money for a reason..
Jesus we require a manual transaction as low as $1 to be checked by 3 people.
The Federal Reserve alone clears over 4 trillion dollars PER DAY, I would guess SWIFT is clearing over 10 trillion per day now... over 80% of which is concentrated among the handful of "usual suspects" ...so whoever at DB is responsible for signing off on billion dollar transfers probably has several pages of them that they are trying to work through before lunch or happy hour...
As to letting it go, if the offsetting "account" is a GL normally associated with settling institutional accounts is a 6 billion dollar debit really that much given how much some of these institutional clients are transacting on any given day?
Yeah, more than 1 person fucked up here, and the controls should be better, but what's a 6 billion dollar transfer to an institution that probably moves the better part of a trillion dollars per day? A rounding error, in a bullshit financialized ponziconomy.
Some back office kid would have made that payment and they're in the back office for a reason.
Don't ever apply for a job operating a SWIFT or FEDLINE terminal.
Some back office kid would have made that payment and they're in the back office for a reason.
Don't ever apply for a job operating a SWIFT or FEDLINE terminal.
too many zeros herr mozart!
(was i really the only one thinking it?)
You forgot the drool cups.
This story is very dubious.
I doubt it's possible for a $6,000,000,000 transaction to complete without several manual checks.
That's why such large transactions have larger transaction fees associated with them.
Somebody's been diddling petty cash again.
This really depends on the contracts between DB and the hedgies
>The beneficiary could never hold on to the money
>in any legal fashion
Ha! That's exactly how he *could* have held onto it. Spend $100m on lawyers, and let's see who owns the rest. LOL. Thirty-seven years later, the court decides to split the difference. Welcome to court.
"Meh, trade gets cancelled, what's the story?"
Maybe it is just me -- but it should highlight the difference between a net and gross amount on a derivatives trade.
Yes, relatively I have a few $6k trades that my fat fingered executive carried out that clearly had too many zeros. Please cancel them...oh again, not in the club.
UFB
You gotta be kidding me. You let a kid near a computer capable of a wire transfer and he doesn't know the differnce between gross and net? I wonder what schools he went to.
In my work one couldn't purchase a box of screws without it being reviewed.
Apparently, the bigger the screw, the looser the standards.
^^^
ill go with "what is harvard or wharton school of finance for $500 please alex"
"I wonder what schools he went to."
School of Cool my man, School of Cool.
https://www.youtube.com/watch?v=uiFB4_c_2sI
Lagos High School.
Yes of course we believe that some guy at that level has the authority to issue $6 Billion. The bullshit is getting deeper and deeper.
Banks don't send any wire without at least two signatures of authorized officials.
What's more surprising is the client returned the funds. DB probably wouldn't have even noticed.
Or, another derivative blew up and the Fed came to the rescue....again.
Whatever happend that wire was no accident. Someone got paid.
There's the way the operations manual (and the regulations) are written, and there is the way things are actually done in a bank...
When I was in banking one of the groups that reported to me was the guerrilla IT group within banking operations, so in addition to having management access to both the Fedline terminal itself and the software front ends that "normal" back office users used, I also had IT administrator access to both the test and production environments.
The identity of the recipient of the wire, and their relationship(s) to the people at the top of the bank food chain determine which set of rules applies.
Well, to be fair, interns are likely to be the only people in the company who actually work. ;)
Someone probably blindfolded him with dental floss. Sum Ting Wong!!
Reminds me of the loser in Casino '''couldn't you just give m my money back? you know, 'casino gives ordinary guy a break...good for publicity.
Maybe I should check my account balance quickly.
The greatest cover your ass comment,"He wasn't authorized".
If he wasn't authorized the system/process/governance should have prevented his action.
Where's my taste?
How come they never fatfinger 6 billion into my account? I fell cheated!
If my fingers are the right size, one day's interest on $6 billion at 3% simple interest is $493,150.68 -- Looks like enough for a bunch of folks to get a taste!!
I guess he is an ex junior banker now.
Back to newbie in the mailroom for you!
God I love fat fingers...
DB's tens of trillions in gross derivatives are in sure hands.
I am sure about that. As are JPMorgan's 63'662'000'000'000 USD.
In "the Firm's view" (with capital "F"), there is no need to worry:
"While the notional amounts disclosed above give an
indication of the volume of the Firm’s derivatives activity,
the notional amounts significantly exceed, in the Firm’s
view, the possible losses that could arise from such
transactions".
JPMorgan Chase & Co. Annual Report 2014, page 206
How does the fat finger thing keep popping up when the finance industry is supposed to be full of the best and brightest?
the best and brightest aren't punching the keys.....they are busy showing powerpoint slides to each other.
Original work by the NukePro
http://nukeprofessional.blogspot.com/2015/10/germanys-electric-rate-has-...
The pro-nuclear crowd, pulling out all the stops to save their dying industry, states that Germany is doing horribly under their "mistake" to invest in solar and shut down nuclear. What is reality.
Reality is that Germany's cost for electricity has dropped in half since Fukushima.
This first chart doesn't tell the whole story. Each Euro buys 1.15 USD. So if you take the average call it 39 Euro per MWH, and multiply by 1.15, you get 44.85 USD per MWH, or converting to kWH 4.48 cents per kWH.
BUT! and don't lose the importance of this, Look at the chart below, Since Fukushima the Euro has lost about 30% of its "value". IN 2011 the wholesale rate was 65 Eur/MWH and Eur/USD was 1.45, calculating to a cost of 9.42 cents per kWH.
Simply put....since Germany has decided to phase out nuclear power, their electric rate has dropped by half.
I don't mind off topic, but WTF are you talking about???
While electricity "market" prices are going down (due to massive government there is no real market for electricity in the same way that there is no real market for treasuries due to the Central banks), the grid fees, new renewables compensation remuneration and so on keep rising, so the end customers in Germany pay more and more every year.
I would suggest you look at these slides:
https://www.bdew.de/internet.nsf/id/8CFC3276B7FF3A9CC1257DDA0049A5D0/$file/150831_BDEW_Strompreisanalyse_August2015.pdf
And btw: I am not sure how EURUSD would matter for electricity prices?!? Oh jeez....
I could tell y'all stories about the wire transfer room in a Major Bank back in the day ... but I'd rather thought things were more controlled these days, computer double-checks up your wazoo. Apparently not at DB.
"the $6bn error raises questions about why it was not spotted under the bank’s “four eyes principle”, requiring every trade to be reviewed by another person before being processed."
Because they fired all the white employees and outsourced all the non-trader jobs to India and China where a bunch of dimwits are now processing your trades.
But jokes aside, I call bulshit on this, as all their wires of this size are manually processed by wires department before they go out.
Same with software development. White developers laid off and replaced by vibrants. Short-term savings, medium-long term disaster.
DB's Private Wealth Clients are still in dreamland on the safety of their data ?
This is as blatant of a four-eye fail as it gets.
As someone who got their start in prime brokerage ops back in that day, I can say I saw this happen way too often on a smaller scale. The sloppiness seems to persist. Asking clients to kick wires back was always fun.
Wait, that client was a Nigerian prince. Totally legit.
Four eyes principle: he was wearing glasses
my wife wears a contact lens in one eye underneath a pair of glasses. does that make her a "five eyes"?
Impressive for sure, but how fat are her fingers?
Off point but is she short and long sighted in one eye only?
This is what happens when you hire an intern and don't pay the prevailing wage. It's okay though, we can just print more money.
The Douche Bank junior trader has demonstrated that he too could become an exceptional American if just given the opportunity.
palm meet face....
in other news....intern receive million dollar bonus...well because the bank has too many zeroes...and wouldn't want to hurt the intern's self esteem
Sure not a fraud massaged as an error ? When a ship sinks, the sailors loot, this is as certain as the sun rises from the East. Ask any insurance unerwriter.
Total bulshit on the answer here. I worked in this industry for 20 years, anything over 8, or at the least 7 figures had to have someone else double check it. Anything over 8s and you need partner/managing member/department head approval and that person handles it themselves, not signoff and let a junior trader handle it.
Put it this way - how hard would it be for said junior person to set up an offshore account with a name strikingy similar to the client in question. Slight change - then wire 6B to their account rather than client because no one checks - other than a cursory glance at the name. Wire out gets re-wired to banks that will not give the money up so easily and the money is gone. DB is BK and a junior trader was able to take them down with a single wire transfer ....
Yeah so? That is still a lost on the client with their performance.
There are zero controls at this archaic, innefective and introvert instiitution. Where the rest of the market has moved on, DB are still playing with 90s technology and continue to be one of the most silo-oriented banks on the market.
As long as FO is still pulling all the strings, and anything resembling a control department (Credit Risk, Operational Risk etc.) is pushed as far away as possible, this kind of shit is still going to happen. There are no formal or logged checks of any pre-deal activity, in any good time against any good data, let alone post-trade management, so of course a few billion can accidentally be sent.
It's public information, but the head of Risk is on a €5mn package per year to oversee this inept shit-show. He must wake up every morning and quietly piss himself laughing in the mirror at how he's landed this gig....
http://www.bloomberg.com/research/stocks/people/person.asp?personId=2239...
Let that sink in.....even if he does 5 years, making no meaningful change and running a shit show that continues to be fined from all angles, he's still better off to the tune of 25mn Euros.
ZE GERMANS - IF they fuck up, then it is always a monstrous-sized fuck up!