Earlier this month, Deutsche Bank’s co-CEOs Anshu Jain and Jürgen Fitschen were shown the door (well, technically they resigned, but with shareholder support plummeting amid skepticism about both financial targets and ongoing legal problems, it’s easy to read between the lines). The bank, which has paid out more than $9 billion over the past three years alone to settle legacy litigation, has become something of a poster child for corrupt corporate culture. Consider the following rundown of the legal problems the bank faced as of the beginning of its 2015 fiscal year:
We are currently the subject of regulatory and criminal industry-wide investigations relating to interbank offered rates, as well as civil actions. Due to a number of uncertainties, including those related to the high profile of the matters and other banks’ settlement negotiations, the eventual outcome of these matters is unpredictable, and may materially and adversely affect our results of operations, financial condition and reputation.
A number of regulatory and law enforcement agencies globally are currently investigating us in connection with misconduct relating to manipulation of foreign exchange rates. The extent of our financial exposure to these matters could be material, and our reputation may suffer material harm as a result.
A number of regulatory authorities are currently investigating or seeking information from us in connection with transactions with Monte dei Paschi di Siena. The extent of our financial exposure to these matters could be material, and our reputation may be harmed.
Regulatory and law enforcement agencies in the United States are investigating whether our historical processing of certain U.S. dollar payment orders for parties from countries subject to U.S. embargo laws complied with U.S. federal and state laws.
We have been subject to contractual claims, litigation and governmental investigations in respect of our U.S. residential mortgage loan business that may materially and adversely affect our results of operations, financial condition or reputation.
In April, Deutsche settled rate rigging charges with the DoJ for $2.5 billion (or about $25,474 per employee) and subsequently paid $55 million to the SEC (an agency that’s been run by former Deutsche Bank employees and their close associates for years) in connection with allegations it deliberately mismarked its crisis-era LSS book to the tune of at least $5 billion.
But it was out of the frying pan and into the fire so to speak, because early last month, the DoJ announced it would seek to extract a fresh round of MBS-related settlements from banks that knowingly packaged and sold shoddy CDOs in the lead up to the crisis. JP Morgan, Bank of America, and Citi settled MBS probes when the DoJ was operating under the incomparable (and we mean that in a derisive way) Eric Holder but now, emboldened by her pyrrhic victory over Wall Street’s FX manipulators, new Attorney General Loretta Lynch is set to go after Barclays PLC, Credit Suisse Group AG, Deutsche Bank AG, HSBC Holdings PLC, Royal Bank of Scotland Group PLC,UBS AG and Wells Fargo & Co.
With the bank facing yet another settlement that could run into the billions and with both CEOs on the way out, the exodus continues as Bloomberg reports that Jonathan Pollack, the bank’s global head commercial real estate, is leaving after 16 years. Here’s more:
Pollack departed on Friday, according to a company memo. Amanda Williams, a Deutsche Bank spokeswoman, confirmed the contents of the memo and declined to comment further. Pollack who was based in New York, didn’t immediately return telephone calls seeking comment.
Pollack took the helm of Deutsche Bank’s commercial mortgage bond business in 2011 and helped make it Wall Street’s top underwriter of securities linked to real estate from strip malls to skyscrapers. The bank’s ascent coincided with the rebirth of the roughly $550 billion market for packaging real estate debt into bonds and selling it to investors. Sales of such securities had frozen for more than a year in the wake of the financial crisis.
Pollack's departure comes just one month after the bank's head of structured finance Elad Shraga left to start his own fund. Shraga was instrumental in helping Deutsche become "an award-winning arranger of asset- and mortgage-backed debt." Shraga had been with Deutsche Bank for 15 years.
All of this seems to lend credence to the idea that Deutsche Bank may be in trouble. The employee exodus appears to be gathering steam, while the firm's legal troubles show no signs of abating. Indeed the bank's headquarters were raided just last week by authorities searching for information on client tax evasion.
Considering all of the above, one cannot help but be reminded of William Broeksmit, the former head of capital and risk optimization at Deutsche Bank who tragically took his own life in his South Kensington home in late January of 2014. Prior to committing suicide, Broeksmit told a psycologist that he was, in WSJ's words, "anxious about various authorities investigating" the firm.
Of course if Deutsche Bank does find itself up against the wall, it can always call in a few favors from former employees turned SEC officials turned high-profile attorneys like Robert Khuzami but as we noted last year, "it is usually best to just avoid litigation altogether, which is why perhaps sometimes it is easiest if the weakest links, those whose knowledge can implicate the people all the way at the top, quietly commit suicide in the middle of the night..."
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After the US market close, Bloomberg reported that Pollack will now join Blackstone as CIO of the firm's property debt unit, and will report to Michael Nash who's in charge of debt strategies. This means Pollack will set about securitizing landlord and home flipper loans in no time. Recall that Deutsche Bank was set to be the lead underwriter for the first landlord loan-backed securitization.