‘Enhanced Repos’ the Latest Corruption Exposed at Deutsche Bank
Oct. 6, 2016 (EIRNS)—The alarmingly sinking Deutsche Bank announced 1,000 more job cuts this morning; without government intervention to break the bank up, the death spiral which has set in, of the bank’s revenues falling faster than costs can be cut, will eventually bankrupt it, if a blowout of its huge derivatives exposure doesn’t destroy its liquidity first.
Telegraph: "Deutsche Bank is latest victim of Treasury’s War." Latter is title of a new book by Juan Zarate, U.S. Treasury financial sanctions/fines consultant. Says Deutsche Bank not in danger of immediate failure, but if its revenues keep falling faster than its ability to cut costs, and German government does not act, it will fail. It cannot raise capital until the fine is finally settled, or Treasury will take the capital raised.
As negotiations continue in Washington between CEO John Cryan and U.S. Justice Department officials, over the size of a huge fine of the bank for mortgage securities fraud leading to the 2008 financial crash, CNBC reported late Oct. 5 that German government officials are taking part in those negotiations by telephone and in person. Today the German Finance Ministry denied this, as it has all other reports of its activities in the deepening Deutsche Bank crisis.
But now, yet another scandal, and potential financial crime, has been added to Deutsche’s very long list, as reported in Bloomberg News Oct. 6. Prosecutors in Italy have already charged the bank and some of its executives with creating fraudulent derivatives contracts for the sinking Monte dei Paschi di Siena (MPS) Bank in 2008, enabling MPS to hide billions in losses and conceal its condition from regulators and stockholders. The derivatives ended up being ruinous for MPS’s financial condition.
Bloomberg reported that the prosecutors have found that Deutsche Bank created these "enhanced repos," not once, but 103 times, for dozens of clients. And the German bank regulator BaFin discovered that Deutsche Bank "mismarked"—i.e., misrepresented the nature of—these repos, or repurchase agreements. Repos are a form of loan, but "in an attempt to clean up balance sheets", Deutsche Bank converted them to derivatives.
The intent—to hide assets or liabilities of financial institutions "off the books," recalls the criminal practices of Enron, and the suicidal practices of Lehman Brothers. According to Bloomberg,
"the widespread use of a transaction that’s now the subject of a criminal case, highlights the lenders’ appetite for complexity,"
"mounting legal costs have become a source of increasing concern to investors, driving shares to a record low."
The existence of this new scandal—and the fact that Deutsche Bank has been charged with illegal and immoral activities, over and over, in just about every imaginable area of financial speculation—may also explain why the U.S. Department of Justice is demanding so large a fine, $14 billion, in the mortgages securities case against the bank.