ECB Allowed Deutsche Bank To Cheat In Latest Stress Test, FT Reports

Tyler Durden's picture

In the latest scandal to emerge involving Deutsche Bank, earlier today the FT reported that German's largest lender was allowed to cheat, pardon was given "special treatment" by the ECB in the July stress tests.  As part of the July stress tests results, which "promised to restore faith in Europe’s banks by assessing all of their finances in the same way" Deutsche Bank’s result was boosted by a "special concession" agreed to by Mario Draghi: DB's results included the $4 billion in proceeds from selling its stake in Chinese lender Hua Xia even though the deal had not been done by the end of 2015, the official cut-off point for transactions to be included.

While the Hua Xia sale was agreed in December 2015, it has still not been completed and now faces a delay after missing a regulatory deadline last month, though the bank is still confident of completion this year.

As the FT notes, the Hua Xia treatment was disclosed in a footnote to Deutsche’s stress test results, and adds that "none of the other 50 banks in the stress tests had similar footnotes, even though several also had deals agreed but not completed at the end of 2015."

As disclosed in the central bank's summer stress test, Deutsche’s common equity tier one capital fell to 7.8% after it was "subjected to the stress tests’ imagined doomsday scenario of fines, low interest rates and low economic growth." However, without the Hua Xia boost, the ratio would have been 7.4%, a level comfortably above regulatory minimums. Why the speal treatment? Because the higher published result helped reassure investors who were growing increasingly nervy about the bank’s capital adequacy.

Other banks were not as lucky:

In one case, Spanish lender Caixabank completed the €2.65bn sale of foreign assets to its parent company Criteria Holding in March but was still not allowed to include the impact of that sale in its results.

The special treatment raised eyebrows among market analysts: “This [Deutsche’s treatment] is perplexing,” said Chris Wheeler, an analyst at Atlantic Equities. “The circumstances mean that it is inevitable the market watchers will be suspicious and have some concern about the veracity of the results.”

Nicolas Véron of Bruegel, the Brussels think-tank, said it was important that both the ECB and the European Banking Authority, which oversaw the tests, could “explain and defend their methodological choices”, especially given the market focus on Deutsche. “Stress testing methodologies should be applied uniformly and without any special treatment,” he added. “This of course equally applies to banks that are systemically important, such as Deutsche Bank.”

The only comment the ECB gave to the FT is that the central bank “treats all banks equally in line with the regulation” even though that appeared not to be the case in an attempt to pad DB's balance sheet. The ECB would not comment on the Deutsche case specifically. The EBA said that there were more than 20 “one-offs” approved in the stress tests. “The one-offs are designed to avoid obvious anomalies in the forward-looking stress test where events have already taken place in 2015,” the EBA said.

According to the FT, other “one-offs” were disclosed citing a clause in the methodology that permits limited concessions around “administrative expenses, profit or loss from discontinued operations and other operation expenses”. Still, there is an obvious contradiction between the disclosure and the stated rules:

The Deutsche disclosure simply says that the results include the proceeds of the Hua Xia sale, which “will be closed in 2016”. There is no effort to reconcile that to the official rules, which say: “any divestments, capital measures or other transactions that were not completed before 31 December 2015, even if they were agreed upon before this date, should not be taken into account in the projections”.

As a result of the report, DB shares, which earlier had traded as low as -3% on the day following the weekend report that the German lender's negotiations with the DOJ had dailed to reach a deal, rebounded and were almost unchanged on the day as traders read into the report that the ECB would break even its own rules to keep Deutsche Bank stable.

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wildbad's picture

I'm shocked! Shocked!

Mario...say it aint so!

TheytookERjobs's picture

He did say 'Whatever it takes" so you can hardly ridicule him of pulling off such a stunt

NoDebt's picture

Why would you "stress test" banks based on the EOY financials that are 7 months old at that point?  (Even if they were real-time DB's sale deal would STILL not have been included.)

Why not just stress test banks based on their EOY 2007 financials?  Then everything would look great and they could float the narrative that the 2008 financial crisis never happened.  

Donald J. Trump's picture

They created a loophole for themselves (hopong no one else would catch on) so they could later sue the bank for misleading them.

pods's picture

Start with conclusion (DB is fine) and work backwards.

They have already said that lying is allowed if things are serious.


Cautiously Pessimistic's picture

Hey ... come on now.  It is better to cheat than repeat.


NaiLib's picture

:) well well. All other banks in EU just love it! "Competition" is fair....

Amun's picture

Siemens, Volkswagen, Deutsche Bank, surely more to follow


From "Made in Germany" to "Cooked in Germany"

Sandmann's picture

Try Airbus A400M, try Bosch, 

CuttingEdge's picture

Think ahead. Bayer just bought Monsanto...

Donald J. Trump's picture

Normally I wouldn't get upset at Germans buying American companies because they make quality stuff.  It's bettef than Chinese buying it.  But soon the German stuff will be Muslim stuff and if it still exists it will blow up.  Yeah, muzzy owned chemical companies, good mix.

Sandmann's picture

Bayer made Aspirin now they make Roundup.......

Father ¢hristmas's picture

Did you notice the two birds fly through the twin towers right after the guys did the NYFinest rip-off?

Of course you didn't, bitch.  I just motherfucking told you.

Worthless old whore.

schubox's picture

I don't know but it makes one wonder, how much longer can all this crap go on for. Maybe I'm just getting impatient. 

TheytookERjobs's picture

Just breath and distract yourself with porn. The anxiety attacks are just around the corner. Best have xanax on hand

buzzsaw99's picture

the fed helps usa banks cook the books every eoq to thwart regulations and bamboozle investors.

JailBanksters's picture

So you've racked up 50 Trillion in Gambling Bets, and the only difference between a pass and fail on your Final Exam is a Fraudulent 4 Billion Deal. WTF ?


LadiesLoveCoolJames's picture

"Hey officer, that wild-eyed, blood covered man with the knife just jay walked. You should give him a citation immediately."

Sandmann's picture

The special treatment raised eyebrows among market analysts: “This [Deutsche’s treatment] is perplexing,” said Chris Wheeler, an analyst at Atlantic Equities.


Mario Draghi ........Paul Achleitner.............GOLDMAN SACHS


Oh and poor Chris was not only at Lehman but Mediobanca and Bear........and he simply cannot imagine why DB is "magic circle"  [hint: it is managed by David Copperfield]

  • US bank analyst Atlantic Equities January 2015 – Present (1 year 10 months)

    Following the large US banks (JPM, C, WFC, BAC, GS, MS, PNC, USB and FRC), while keeping an eye on the global investment banking and wealth management industries.

    Atlantic Equities is a US equity research house based in London and serving European clients. It was formed in September 2003 by an established team from Cazenove.

  • Director Mediobanca April 2010 – December 2014 (4 years 9 months)

    Prime responsibility for following the US and European investment banks in addition to the UK banks. Coverage includes Deutsche Bank, Credit Suisse, UBS, Goldman Sachs, JP Morgan Chase, Morgan Stanley, HSBC, Standard Chartered, Lloyds Banking Group, Royal Bank of Scotland and Barclays

LadiesLoveCoolJames's picture

Same "analysts" always perplexed when the Washington Generals lose at the buzzer.

WTFUD's picture

Never taught me this at Accountancy Skool. Wonder if i can sue them for me money back.

There's a book 'What They Don't teach You At Harvard'. I'm sorry i didn't get around to reading it a dozen years or so ago. I imagine though, it would be 'child's play' compared to the theft/skulduggery that goes on in these Banking Institutions.

GoldToDaMoon's picture

"Since 2011, the Federal Reserve has performed a yearly “stress test” of U.S. lenders, assessing whether banks would have enough capital to withstand the shock of an economic downturn. Deutsche Bank failed the test in 2015, and failed again this June, when “broad and substantial weaknesses” were uncovered. Soon after the Federal Reserve’s latest report was released, the International Monetary Fund issued a dire warning. Deutsche Bank, it said, was not only “one of the most important net contributors to systemic risks in the global banking system”; it was also a contagious agent, because of heavy financial “spillover” between Deutsche Bank and other lenders and insurers. Any kind of failure at Deutsche Bank, the I.M.F. suggested, would be extremely bad news for everybody."

Ed Caesar, The New Yorker

BabaLooey's picture

Stress Tests are jokes


The Fed, or in this case, the feckless ECB, essentially throws a bunch of scenarios at the banks to see what will happen to their balance sheets if, say, the stock market crashes and GDP grinds to a halt.

This sounds like a great idea.

But what these stress tests fail to take into consideration is that in a real crisis (like we saw in 2008), just about every nightmare scenario occurs at the same time.

Markets crash. GDP goes negative. Unemployment surges. Then major institutions collapse, which causes other major institutions to collapse.

The Fed’s stress tests assume that bank failures happen in a vacuum. They don’t. When one major bank fails, it drags the other banks down with it.

That’s precisely what happened in 2008. Lehman Brothers went under, creating a financial maelstrom that nearly brought down the entire financial system with it.



wmbz's picture

Since the whole system is a fucking lie, no one can be suprised that they lie and cheat. That's all Banksters Inc. does. Of course with other peoples money.

East Indian's picture

Too Big To Pass the test

gregga777's picture

Every banking gangster stock, bond and other securities in the world would be worthless if not for the explicit government promises to rape their taxpayers to support these criminal crony capitalist conporations. The banking gangster business model is based solely on profitable criminal enterprises and bribing their political parasites 'employees'.

RattieNomNom's picture

ECB again?! Collecting stuff for blackmail?! I'm so shocked now?!

Joe A's picture

"The only comment the ECB gave to the FT is that the central bank “treats all banks equally in line with the regulation”"

But some are more equal than others....

Invinciblehandaxe's picture

no wonder since zee germans are exceptional just like murikans

Heavenlysunshine's picture

The international Shylock/Rothshield/mafia banksters are just squabbling amongst

themselves. Any European, Asian or American bank's hard assets (not fiat)

will no doubt be mopped up and end in Tel Aviv.

zippy_uk's picture

"We're no different from Goldman Sachs - whats the problem ?"