Executive Intelligence Review


Deutsche Bank’s Investment Bank Albatross Must Be Cut Loose

June 21, 2018 (EIRNS)—A huge one-day loss by Deutsche Bank’s U.S. investment bank division, reported June 20 by Bloomberg News, more than confirmed the Federal Reserve/FDIC decision to place the U.S. division on the “troubled bank” list. It also confirmed the judgment of German bank consultant Dieter Hein, reported in Tageszeitung June 12, that the global investment bank will continue erupting in large, “hidden” losses until it wears out Deutsche Bank’s diminishing capital, forcing a national bailout or failure.

Deutsche Bank’s first-quarter financial report had omitted the fact—revealed in a May 7 regulatory filing—that its Stamford, Connecticut- and New York-based traders lost an unheard-of 12 times “value at risk” on one day during that quarter. “Value at risk” (VaR) is an estimate made to regulators, by the bank’s risk officers, as to the maximum amount it might lose in a day’s business. “Even a loss of two or three times VaR on a given day is unlikely. Twelve times VaR is extraordinarily unlikely,” said Andrew Lo, a finance professor at MIT Sloan School of Management, told Bloomberg, speaking generally of trading losses. The amount of the loss was probably in the range of $400 million, and the U.S. division lost $46 million for the first quarter as a whole.

While such events do not in themselves bankrupt the bank, they dramatically illustrate what Fed regulators stated in the “troubled bank” designation: That Deutsche Bank’s U.S. division traders and controlling officers have lost the ability to determine their own loss exposures, or even which other counterparties they are exposed to, especially in their complex derivatives trading. Hein told Tageszeitung that these “shock” losses are hidden in the investment banking divisions and will continue to erupt—even as the bank top management tries in some desperation to downsize the investment bank—until Germany is forced to a massive bailout.

Lyndon LaRouche proposed in July 2016 that Deutsche Bank be recapitalized by the Berlin government on condition that it be simultaneously reorganized (broken up) to restore the commercial bank to the nation-building policies of its martyred chief Alfred Herrhausen, who was assassinated on Nov. 30, 1989.