How Mistaking Euros With Yen Cost Deutsche Bank $35 Billion

One month ago we reported how, three years after a historic "fat finger" wire transfer in which Deutsche Bank mistakenly sent $6 billion to a (briefly) lucky hedge fund, a routine payment at the biggest German bank "went awry" (or as Bloomberg said at the time, "was flubbed") when the bank "mistakenly" sent 28 billion euros ($35 billion) to an exchange as part of its daily derivatives margin transfers. The delighted - if only for a short time - recipient of the massive transfer was the Deutsche Boerse AG’s Eurex clearinghouse, in whose account the sum landed.

"This was an operational error in the movement of collateral between Deutsche Bank’s principal accounts and Deutsche Bank’s Eurex account,” Charlie Olivier, a spokesman for Deutsche Bank, told Bloomberg. “The error was identified within a matter of minutes, and then rectified. We have rigorously reviewed the reasons why this error occurred and taken steps to prevent its recurrence."

To be sure, as Bloomberg wrote in April, "the episode raises fresh questions about the bank’s risk and control processes, at a time when lenders are faced with increased scrutiny from regulators. It’s another embarrassment for Deutsche Bank at a time when it is undergoing a change of leadership in the wake of its third straightannual loss."

Ok fine, but what exactly happened?

We didn't know the answer, until this morning when Deutsche Bank, whose stock is now down almost 6% on the day, crashing to the lowest level since September 2016 when traders were asking if Germany would bail it out, revealed at its shareholder meeting in Frankfurt that the accidental transfer of €28BN to its account at Eurex earlier this year was caused by the input of euros instead of yen, CEO Sewing told shareholders.

That's right: while everyone has heard of "fat fingers" in executing trades, when one currency could be switched for another, or an extra zero added here or there, this may be the first time in history when mistaking Euros for Yen led to a "mistaken" $35 billion wire transfer.

The usual promises that Deutsche Bank had earned from this humiliating mistake followed: “We have significantly improved controls for large-volume payments. Also in this specific case, we immediately and conscientiously examined the causes and took measures to make sure that such a mistake won’t be repeated”... and “the bank discovered and corrected the mistake within a matter of minutes." 

Sewing vowed that "there was no financial damage", which is true; there was only devastating reputational damage as Deutsche once again became becoming the laughing stock of Wall Street that is.

But wait there's more, because as Bloomberg adds this morning, the above mentioned two "fat finger" transfers were not the only skeletons in the German bank's closet, as in March 2014, the German bank mistakenly sent 21 billion euros to Macquarie Group as collateral for an over-the-counter derivatives trade. That incident supposedly led directly to the introduction of "fail-safes"...  though these didn’t catch either the 2015 fiasco or the March 2018 gaffe.

Meanwhile, others remain stunned:

“How can you send $35 billion and not know about it?” said Francesc Rodriguez Tous, a lecturer in banking at Cass Business School in London, speaking about this year’s mistake. “This tells you a lot about the state of the IT systems in some of these big banks. It’s very difficult and expensive for them to upgrade these systems.”

Worse, $35 billion is now more than the entire market cap of Deutsche Bank, which as of this morning had tumbled to just $22 billion, just shy of the lowest on record, and below Twitter's $25 billion market cap.

One thing is certain: if DB's stock price continues to crash at today's pace, soon it will no longer be able to make such mistakes for a very simple reason: it won't have access to anywhere near these sums of money as it approaches insolvency and its counterparties once again start pulling their DB exposure.