Category Archives: Banks

(ZH) Bank Run: Deutsche Bank Clients Are Pulling $1 Billion A Day

(ZH) There is a reason James Simons’ RenTec is the world’s best performing hedge fund – it spots trends (even if they are glaringly obvious) well ahead of almost everyone else, and certainly long before the consensus.

That’s what happened with Deutsche Bank, when as we reported two weeks ago, the quant fund pulled its cash from Deutsche Bank as a result of soaring counterparty risk, just days before the full – and to many, devastating – extent of the German lender’s historic restructuring was disclosed, and would result in a bank that is radically different from what Deutsche Bank was previously (see “The Deutsche Bank As You Know It Is No More“).

In any case, now that RenTec is long gone, and questions about the viability of Deutsche Bank are swirling – yes, it won’t be insolvent overnight, but like the world’s biggest melting ice cube, there is simply no equity value there any more – everyone else has decided to cut their counterparty risk with the bank with the €45 trillion in derivatives, and according to Bloomberg Deutsche Bank clients, mostly hedge funds, have started a “bank run” which has culminated with about $1 billion per day being pulled from the bank.

As a result of the modern version of this “bank run”, where it’s not depositors but counterparties that are pulling their liquid exposure from DB on fears another Lehman-style lock up could freeze their funds indefinitely, Deutsche Bank is considering how to transfer some €150 billion ($168 billion) of balances held in it prime-brokerage unit – along with technology and potentially hundreds of staff – to French banking giant BNP Paribas.

One problem, as Bloomberg notes, is that such a forced attempt to change prime-broker counterparties, would be like herding cats, as the clients had already decided they have no intention of sticking with Deutsche Bank, and would certainly prefer to pick their own PB counterparty than be assigned one by the Frankfurt-based bank. Alas, the problem for DB is that with the bank run accelerating, pressure on the bank to complete a deal soon is soaring.

Here are the dynamics in a nutshell, (via Bloomberg): Deutsche Bank CEO Christian Sewing is pulling back from catering to risky hedge-fund clients, i.e. running a prime brokerage, as he attempts to radically overhaul the troubled German lender while BNP CEO Jean-Laurent Bonnafe wants to expand in the industry. A deal of this magnitude would be a stark example of the German firm’s retreat from global investment banking while potentially transforming its French rival from a small player in the so-called prime-brokerage industry to one of Europe’s biggest.

Of course, publicly telegraphing that DB is in dire liquidity straits and needs an in-kind transfer of its prime brokerage book would spark an outright panic, and so instead the story has been spun far more palatably, i.e., “BNP is providing “continuity of service” to Deutsche Bank’s prime-brokerage and electronic-equity clients as the two companies discuss transferring over technology and staff“, according to a July 7 statement. The ultimate goal of the talks is for BNP to take over the vast majority of client balances, which are slightly less than $200 billion currently.

There is just one problem: nothing is preventing those clients who would be forcibly moved from a German banking giant to a French banking giant from redeeming their funds. And that’s just what they are doing. Or rather, nothing is preventing them from moving their exposure for now, which is why they are suddenly scrambling to do it before they are suddenly gated.

Which is why the final shape of the deal remains, pardon the pun, fluid, and it is unclear how it will proceed, facing a multitude of complexities, including departing clients.

In an attempt to stop the bank run, BNP executives are meeting with U.S. hedge-fund clients this week to convince them to stay following similar sit-downs with European funds last week, Bloomberg sources said.

However, if this gambit fails, and hedge funds keep moving their business elsewhere, officials at the German bank may just relegate its assets tied to the prime finance division into the newly formed Capital Release Unit, i.e. the infamous “bad bank” which is winding down unwanted assets totaling 288 billion euros ($324 billion) of leverage exposure, and the prime brokerage is responsible for much of the 170 billion euros of leverage exposure that’s coming from the equities division into the division, also known as CRU a presentation shows.

It also means that countless hegde funds are suddenly at risk of being gated on whatever liquid exposure they have toward Deutsche Bank.

To be sure, Deutsche Bank’s hedge fund balances have been declining throughout the year as speculation swirled around Sewing’s intentions for the prime brokerage, but the rate of redemptions was far lower than $1 billion per day. Now that the bank jog has become a bank run, the next question is how much liquidity reserves does DB really have and what happen if hedge funds clients – suddenly spooked they will be the last bagholders standing – pull the remaining €150 billion all at once.

We are confident we will get the answer in a few days if not hours, until then please enjoy this chart which compares DB’s stock decline to that of another bank which was gripped by a historic liquidity run in its last days too…

(JN) Goldman recomenda aposta na dívida portuguesa para aproveitar compras do BCE

(JN)

Os juros da dívida portuguesa negoceiam perto de mínimos históricos, mas o Goldman Sachs acredita que há espaço para mais descidas, uma vez que o BCE vai comprar mais dívida do que o mercado está à espera.

O Banco Central Europeu vai arrancar em setembro com um novo programa de compra de dívida (“quantitative easing”), aplicando um total que oscilará entre 200 e 250 mil milhões de euros.

A estimativa é do Goldman Sachs e duplica as expectativas atuais do mercado, que está incorporar um programa entre 100 e 150 mil milhões de euros, pelo que o banco considera que as obrigações soberanas europeias ainda têm espaço para valorizar.

Desta forma, o banco de investimento está a recomendar aos clientes a aposta em títulos de dívida de Portugal e Espanha antes da reunião de 12 de setembro, altura em que a instituição liderada por Mario Draghi deverá oficializar o lançamento de um novo programa de compra de dívida.

O Goldman Sachs entende que reforçar as posições longas nas obrigações de Portugal e Espanha é a melhor estratégia para tirar partido da política monetária do BCE, uma vez que nos títulos de dívida de países como França, Bélgica e Áustria o “quantitative easing” da autoridade monetária já está mais descontado. Segundo o Goldman, a dívida da Irlanda também deve ser beneficiada.

“Pensamos que há mais margem” para que a dívida europeia “continue a ser suportada” pelo anúncio do programa de compra de ativos na reunião de setembro do BCE, referem os analistas do Goldman, numa nota que está a ser citada pela Bloomberg. “Tal sugere que há mais margem para um ‘rally’”, acrescentam.

O banco de investimento considera ser “exequível” que Mario Draghi, na última reunião enquanto presidente do BCE (12 de setembro), anuncie um programa de compra de dívida de 25 mil milhões de euros por mês durante nove meses.     

As taxas de juro da dívida de diversos países europeias caíram para mínimos históricos depois de Draghi ter sinalizado em Sintra que o BCE iria adotar mais medidas para travar o abrandamento da economia europeia e impulsionar a inflação da região, que persiste bem longe da meta dos 2%.

O mercado incorporou que o banco central iria reativar o programa de compra de ativos e baixar a taxa dos depósitos, que já está em terreno negativo (-0,4%).

A “yield” das obrigações portuguesas a 10 anos baixou dos 0,30% na sessão de 3 de julho, sendo que desde então registou uma trajetória de agravamento, até aos 0,6% registados ontem de manhã. Esta terça-feira está de novo em queda acentuada, com uma descida de 5,4 pontos base para 0,52%.

Nos restantes países periféricos, que estão a ser beneficiados por esta nota do Goldman, a tendência é a mesma. A taxa das obrigações espanholas a 10 anos desce 5 pontos base para 0,45% e nas obrigações italianas com a mesma maturidade a descida é de 5,1 pontos base para 1,59%.

(Reuters) U.S. probes Deutsche Bank’s dealings with Malaysia’s 1MDB: WSJ

(Reuters)

(Reuters) – The U.S. Justice Department is investigating whether Deutsche Bank AG (DBKGn.DE) violated foreign corruption or anti-money-laundering laws in its work for state fund 1Malaysia Development Berhad (1MDB), the Wall Street Journal said on Wednesday.The logo of Deutsche Bank is pictured on a company’s office in London, Britain July 8, 2019. REUTERS/Simon Dawson

The news comes after the bank announced plans to scrap its global equities unit, cut some fixed-income operations and slash 18,000 jobs globally in a 7.4-billion-euro ($8.34 billion) restructuring program.

Deutsche Bank’s work for 1MDB included helping to raise $1.2 billion in 2014 as concerns about the fund’s management and financials had begun to circulate, the newspaper said, citing unidentified people familiar with the matter.

Prosecutors are mainly looking into the role of Tan Boon-Kee, a colleague of a former Goldman Sachs Group Inc executive, Tim Leissner, who worked with him on 1MDB-related business, the paper said.

She left Goldman to become Asia-Pacific head of banking for financial institutions clients at Deutsche Bank, where she was involved with further 1MDB dealings, it added.

In an emailed statement, Deutsche Bank said it had fully cooperated with all regulatory and law enforcement agencies that made inquiries about the fund.

“As stated in asset forfeiture complaints filed by the U.S. Department of Justice, 1MDB made ‘material misrepresentations and omissions to Deutsche Bank officials’ in connection with 1MDB’s transactions with the bank,” the bank told Reuters.

“This is consistent with the bank’s own findings in this matter,” it added.

A U.S. DoJ civil asset-forfeiture complaint repeatedly describes Deutsche Bank as being misled by 1MDB officers, the WSJ said.

Tan left Deutsche Bank last year, after it discovered communications between her and Jho Low, the Malaysian financier the Justice Department has described as the central player in the 1MDB scandal, it added.

A representative of insurance company FWD Group, Tan’s current employer, said the company and Tan declined to comment.

The DoJ did not immediately respond to a request for comment from Reuters.

(ZH) “The Mood Is Pretty Hopeless”: Scenes Outside Deutsche Bank Offices Evokes Lehman Collapse

(ZH)

At the end of the day, all of the frenzied whispers in the press about Deutsche Bank CEO Christian Sewing’s sweeping restructuring hardly did it justice. Instead of moving slowly, the bank started herding hundreds of employees into meetings with HR, first in its offices in Asia (Hong Kong, Sydney), then London (which got hit particularly hard) then New York City.

DB

By some accounts, it was the largest mass banker firing since the collapse of Lehman, which left nearly 30,000 employees in New York City jobless. Although the American economy is doing comparatively well relative to Europe, across the world, DB employees might struggle to find work again in their same field.

According to Bloomberg, automation and cuts have left most investment banks much leaner than they were before the crisis, and the contracting hedge fund industry, which once poached employees from DB’s equities business, isn’t much help. Some employees will inevitably find their way to Evercore, Blackstone – boutique investment banks and private equity are two of the industry’s top growth areas – or family offices, which, thanks to the never-ending rally in asset prices (and the return of bitcoin), are also booming.

Oh, and of course, there’s always crypto. Some evidence has surfaced to suggest that many young bankers are already looking to make the leap.

DB

For the highest-paid employees being let go this week, many will need to get used to lower pay. Some 1,100 ‘material risk takers’ have been let go. On average, they earned $1.25 million, with almost 60% of that in cash.

“A lot of these people are going to have to get used to less compensation,” said Richard Lipstein, managing director at recruiting firm Gilbert Tweed International, in a telephone interview. And “the percentage of compensation in cash is lower than it used to be.”

Many will need to leave the street, and possibly whatever city in which they are currently living, to find work elsewhere.

“A lot of the people coming out of DB are going to be very challenged to find jobs just because of the sheer change in the equity business,” said Michael Nelson, a senior recruiter at Quest Group. “When you are dispersing that many people globally, some of those people might have to leave the business.”

But although banking headcount has never returned to its pre-crisis levels…

DB

…at least one major Wall Street institution is looking to hire some Deutsche people: Goldman Sachs.

While BBG’s piece on the layoffs focused on the difficulty these employees may face in finding new work, Reuters described the scene outside these offices, where one insider had warned about “Lehman-style” scenes. To wit, some just fired workers could be seen mulling outside, taking photos with colleagues and splitting cabs, presumably to go to the nearest pub and quaff liquor, beer and prosecco.

Staff leaving in Hong Kong were holding envelopes with the bank’s logo. Three employees took a picture of themselves beside a Deutsche Bank sign outside, hugged and then hailed a taxi.

“They give you this packet and you are out of the building,” said one equities trader.

“The equities market is not that great so I may not find a similar job, but I have to deal with it,” said another.

After weeks of looming dread, employees were called into auditoriums, cafeterias and offices, handed an envelope with the details of their redundancy package, and shown the door. Reuters’ reporters followed some of the employees at DB’s London office to the nearest pub.

Few staff wanted to speak outside the bank’s London office, but trade was picking up at the nearby Balls Brothers pub around lunchtime.

“I got laid off, where else would I go,” said a man who had just lost his job in equity sales.

Job cuts were expansive in the bank’s main support centers, where the mood was “pretty hopeless”.

A Deutsche Bank employee in Bengaluru told Reuters that he and several colleagues were told first thing that their jobs were going.

“We were informed that our jobs have become redundant and handed over our letters and given approximately a month’s salary,” he said.

“The mood is pretty hopeless right now, especially (among)people who are single-earners or have big financial burdens such as loans to pay,” he added.

Sewing’s grand restructuring plan involves shutting down Deutsche’s entire lossmaking global equities business, cutting 18,000 jobs (roughly one-fifth of the bank’s total headcount) and hiving off €288 billion ($322 billion) of loss-making assets into a bad bank for sale or run-off. The goal of the restructuring is to reorient DB away from its troubled institutional business and more toward commercial banking and asset management.

DB

As a JP Morgan analyst pointed out, questions linger over DB’s ability to grow, its “ability to operate a corporate franchise without a European equity business.”

Investors were also taken by surprise, which is probably why DB shares sold off again on Tuesday. Closing the bank’s European equity business as a radical step that few anticipated. Most of the leaks to the media seemed to suggest that the cuts would focus on its foreign business, particularly the troubled US equities unit.

But without an equities business, some clients might lose faith in DB’s ability to win business from large corporations. Then again, there’s also the sheer enormity of what the bank is trying to do: substantially grow revenues while cutting a huge chunk of its staff and closing whole businesses, some of which are synergistic with other businesses that will remain open.

As Daniele Brupbacher of UBS pointed out, the odds of success seem low: “Cutting costs by one-quarter while increasing revenues by 10 per cent over four years in the current market environment, while undergoing massive restructuring, could be seen as ‘challenging.'”

Restructuring costs are also probably weighing on shareholders’ minds: the restructuring is expected to produce a full-year loss.  Will corporate bank head Stefan Hoops succeed in doubling the Global Transaction Bank’s pretax earnings to €2 billion over the next 2 years, and make a tangible return on equity of 15% by 2022? We guess it’s possible. We suppose it’s possible, but is it likely…

(ZH) “The Deutsche Bank As You Know It Is No More”: DB Exits Equities In $8.4 Billion Overhaul, To Fire Thousands

(ZH)

The bank which only a decade ago dominated equity and fixed income and sales trading and investment banking across the globe, and was Europe’s banking behemoth, is no more.

On Sunday afternoon, in a widely telegraphed move, Deutsche Bank announced that it was exiting its equity sales and trading operation, resizing its once legendary Fixed Income and Rates operations and reducing risk-weighted assets currently allocated to these business by 40%, slashing as many as 20,000 jobs including many top officials, and creating a €74 billion “bad bank” as part of a reorganization which will cost up to €7.4 billion by the end of 2022 and which will result in another massive Q2 loss of €2.8 billion, as the bank hopes to slash costs by €17 billion in 2022, while ending dividends for 2019 and 2020 even as it hopes to achieve all this without new outside capital.

“Today we have announced the most fundamental transformation of Deutsche Bank in decades. We are tackling what is necessary to unleash our true potential: our business model, costs, capital and the management team. We are building on our strengths. This is a restart for Deutsche Bank – for the long-term benefit of our clients, employees, investors and society”, CEO Christian Sewing said in a statement.

“In refocusing the bank around our clients, we are returning to our roots and to what once made us one of the leading banks in the world. We remain committed to our global network and will help companies to grow and provide private and institutional clients with the best solutions and advice for their respective needs – in Germany, Europe and around the globe. We are determined to generate long-term, sustainable returns for shareholders and restore the reputation of Deutsche Bank.”

In what has been dubbed a “radical overhaul”, the biggest German lender, unveiled one of the most comprehensive banking restructurings since the financial crisis, closing most of its trading unit and splitting off €74bn of its assets as the struggling German lender calls time on its “20-year attempt to break into the top ranks of Wall Street.”

“These actions are designed to allow Deutsche Bank to focus on and invest in its core, market leading businesses of Corporate Banking, Financing, Foreign Exchange, Origination & Advisory, Private Banking, and Asset Management” the bank said in a Sunday statement.

The highlights of the “radical transformation” as published by the bank:

  • Creating a fourth business division called the Corporate Bank which will be comprised of the Global Transaction Bank and the German commercial banking business.
  • Exiting the Equities Sales & Trading business and reducing the amount of capital used by the Fixed-Income Sales & Trading business, in particular Rates.
  • Returning 5 billion euros of capital to shareholders starting in 2022, facilitated by a new Capital Release Unit (CRU) to which the bank plans initially to transfer approximately 288 billion euros, or about 20% of Deutsche Bank’s leverage exposure, and 74 billion euros of risk weighted assets (RWA) for wind-down or disposal.
  • Funding the transformation through existing resources including maintaining a minimum Common Equity Tier 1 ratio of 12.5%. The bank expects to execute its restructuring without the need to raise additional capital.
  • As a result, the bank’s leverage ratio is expected increase to 4.5% in 2020 and approximately 5% from 2022.
  • Reducing adjusted costs by 2022 by approximately 6 billion euros to 17 billion euros, a reduction by a quarter of the current cost base.
  • Targeting a Return on Tangible Equity of 8% by 2022.
  • Investing 13 billion euros in technology by 2022, to drive efficiency and further improve products and services.

And the key aspects of the reorganization, in more detail as published in a company press release, include:

The exit of Global Equities and a significant reduction in Corporate and Investment Banking risk weighted assets

Deutsche Bank will exit its Equities Sales & Trading business, while retaining a focused equity capital markets operation. In addition, the bank plans to resize its Fixed Income operations in particular its Rates business and will accelerate the wind-down of its existing non-strategic portfolio. In aggregate, Deutsche Bank will reduce risk-weighted assets currently allocated to these businesses by approximately 40%.

The bank will create a new Capital Release Unit to manage the efficient wind-down of the assets related to business activities, which are being exited or reduced. These assets and businesses represented EUR 74 billion of risk-weighted assets and EUR 288 billion of leverage exposure, as of 31 December 2018.

A significant restructuring of businesses and infrastructure

Deutsche Bank will implement a cost reduction program designed to reduce adjusted costs to EUR 17 billion in 2022 and is targeting a cost income ratio of 70% in that year.

To facilitate its restructuring, Deutsche Bank expects to take approximately EUR 3 billion of aggregate charges in the second quarter of 2019, of which approximately EUR 0.2 billion would impact Common Equity Tier 1 capital. These charges include a Deferred Tax Asset write-down of approximately EUR 2 billion and impairments of approximately EUR 0.9 billion. Additional restructuring charges are expected in the second half of 2019 and subsequent years. In aggregate, Deutsche Bank currently expects cumulative charges of EUR 7.4 billion by the end of 2022.

Managing the transformation through existing resources

Deutsche Bank management intends to fund its transformation from its existing resources without requiring additional capital. This reflects the bank’s current strong capital position as well as management’s confidence in the high quality and low risk nature of the assets, which it is exiting. In connection with these decisions, the Management Board intends to recommend no common equity dividend be paid for the financial years 2019 and 2020. The bank expects to have capacity for payments on additional tier 1 securities throughout the transformation phase.

Updated capital and leverage targets

The Management Board believes that the future business mix is consistent with a lower capital requirement. After consultation with the bank’s regulators, the bank now intends to operate with a minimum CET1 ratio of 12.5% going forward. As a result of the significant deleveraging actions, the bank targets a fully-loaded leverage ratio of 4.5% by the end of 2020 rising to approximately 5% by 2022.

Improving broken internal controls

Deutsche Bank is committed to investing a further 4 billion euros in improving controls by 2022. The bank will combine its Risk, Compliance and Anti-Financial Crime functions to strengthen processes and controls while also increasing efficiency. To reshape and improve its long-term competitive position, the bank will undertake a restructuring of its infrastructure functions, which include back office systems and processes that support all business divisions. These functions will become leaner, more innovative and more digital.

A separate Technology function will be created which will have responsibility to further optimize Deutsche Bank’s IT infrastructure. It will also drive the digitalisation of all businesses. This is set to boost innovation as well as further strengthen the internal control environment. The bank will make targeted investments in technology and innovation, utilising a budget of 13 billion euros by 2022.

Of course, none of the above will come for free, and the bank will incur second quarter charges related to the restructuring described above, resulting in a pretax loss before income taxes of approximately EUR 500 million and a net loss of EUR 2.8 billion. The silver lining – if one excludes all these “one-time” charges – which is ironic for the bank which has been restructuring every quarter for the past few years – Deutsche Bank expects to report second quarter 2019 income before income taxes of approximately EUR 400 million and net profit of EUR 120 million.

As the FT notes, the new strategy by CEO Christian Sewing “signals a retreat from Deutsche’s global ambitions and its aim to be Europe’s main rival to Goldman Sachs”. Instead, one year ahead of Deutsche’s 150th anniversary, Sewing is refocusing the lender on its historic roots — financing German and European corporate clients and domestic retail banking.

As we noted previously, the bank with the €43.5 trillion in gross derivatives notional…

… will be hard-pressed to ringfence all of its toxic assets in a relatively modest €74 billion silo. What is just as notable is that the use of a bad bank, an artificial crutch that was prevalent during the financial crisis and shortly after as shown in the chart below…

… confirms that many if not most of Europe’s banks are just as challenged as they were a decade ago, and only the ECB’s actions prevented the market from grasping the true severity of the situation. Which, in a sense, is paradoxical because it is the ECB’s NIRP/QE policies that made Deutsche Bank’s historic restructuring inevitable.

Finally, the bank also said that the restructuring actions will include a workforce reduction of approximately 18,000 full-time equivalent employees to around 74,000 employees by 2022. In aggregate, the bank expects to reduce adjusted costs by approximately 6 billion euros to 17 billion euros in 2022, although pink slip details are likely reserved for a more intimate context.

Most of the job losses are set to come at the investment bank, particularly the underperforming operations on Wall Street and in the City of London. Not only the rank and file will be affected: as we reported yesterday, two top executives have already departed as part of the overhaul — Garth Ritchie, investment banking chief, and Frank Strauss, head of retail banking. Sylvie Matherat, chief regulatory officer, is also expected to leave, as are the bank’s debt chiefs Yanni Pipilis and James Davies.

While it is unclear if the bank can achieve its ambitious agenda in the next 3 years, one thing is certain – the Deutsche Bank that saw RenTec close out its counterparty exposure in recent weeks anticipating what was coming – is no more, and it remains to be seen if the “successor” will be any more successful.

(BBG) Deutsche Bank’s $8 Billion Overhaul Includes Exit From Global Equities

(BBG)

  •  Bank expects to exit its equities sales and trading business
  •  Lender sees no dividend for this year or next amid overhaul
An emergency stop handle in front of the Deutsche Bank headquarters in Frankfurt on July 7.
An emergency stop handle in front of the Deutsche Bank headquarters in Frankfurt on July 7. Photographer: Alex Kraus/Bloomberg

Deutsche Bank AG will exit its equities business and post a net loss of 2.8 billion euros ($3.1 billion) in the second quarter as Chief Executive Officer Christian Sewing seeks to boost profitability and shrink the German lender’s once-mighty investment banking unit.

The lender expects restructuring charges of 7.4 billion euros through 2022 to pay for the radical overhaul and will shelve the dividend this year and next, according to a statement on Sunday. About 18,000 jobs will be eliminated in the restructuring.

Deutsche Bank AG Annual General Meeting
Christian Sewing, chief executive officer of Deutsche Bank AG.Photographer: Alex Kraus/Bloomberg

About 74 billion euros of risk-weighted assets will become part of a new non-core unit and the lender’s capital buffer will be reduced as part of the plan. The bank said it does not plan a capital increase to pay for the overhaul.

The bank said retail chief Frank Strauss and Chief Regulatory Officer Sylvie Matherat, both board members, will leave this month. The departure of investment bank head Garth Ritchie was announced on Friday.

The scale of the revamp underscores the failed turnarounds by Sewing and his predecessors to solve the fundamental problem: costs were too high and revenue too low. After government-brokered merger talks with Commerzbank AG collapsed in April, the CEO had few other options to bolster market confidence. His plan was approved by the board at a meeting Sunday.

The investment bank is a key focus of the overhaul. The unit, which accounts for roughly half of Deutsche Bank’s revenue and which was a major actor in its downfall, will be broken in two. The transaction bank will be lifted out and merged with the commercial clients segment that’s currently within the retail division, people familiar with the matter have said.

The change is designed to accelerate the shift away from acting as the first port of call for institutional clients such as asset managers and hedge funds toward selling cash management, trade finance and hedging products to corporate clients. The new division, to be lead by current transaction bank head Stefan Hoops, will be at the heart of the lender’s future business model.

(EUobserver) EU’s top banks still far from crisis-proof, regulator warns

(EUobserver)

  • EU states were forced to set aside more than a trillion euros to prop up risky banks in the wake of the crisis (Photo: eba.europa.eu)

The EU’s top banks ought to keep more money in reserve, making them less profitable, in order to prevent another 2008-type crisis, Europe’s banking supervisor has said.

The bloc’s largest banks had a total capital shortfall of €135bn “under the most conservative assumptions”, the European Banking Agency (EBA) in Paris said in a report on Tuesday (2 July).

The shortfall was measured against new capital rules agreed in 2017 by the so-called Basel Committee, a global supervisory body at the Bank for International Settlements in Basel, Switzerland, which helps its 60 member countries’ central banks to work together.

It is far lower than the EU shortfall of €277bn recorded in the immediate wake of the crisis in 2009.

The crisis saw the collapse of US investment bank Lehman Brothers due to excessive risk taking.

Its knock-on effects also forced EU states to allocate €1.6 trillion of state funds in the following years in order to prop up wobbly lenders and generated political momentum for a “banking union”, which remains a work in progress.

The new Basel rules, informally called Basel IV, are due to enter into force between 2022 and 2027.

The EU’s banks ought to increase their minimum capital levels by 24.4 percent in order to comply, the EBA said on Tuesday.

The figure was a steep hike from its 2017 estimate of 15.2 percent.

But the obligation to hold on to profits instead of reinvesting them or paying them out to shareholders could make European lenders less competitive.

It could also have a cooling effect on Europe’s economy.

“Given that these banks are responsible for the large majority of lending to businesses and individuals across Europe, the requirement to hold higher capital levels could have negative consequences for the supply and pricing of bank finance,” Michael Lever, from the Association for Financial Markets in Europe, a Brussels-based trade lobby, told the Financial Times.

The EBA survey covered 189 lenders in Europe.

But it said the total €135bn shortfall was being “almost entirely driven by large globally active banks”.

Medium-sized EU banks accounted for just €5.5bn of that figure and ought to boost minimum capital levels by 11.3 percent, the EBA said.

Small banks had a €0.1bn shortfall and needed to raise capital by 5.5 percent, it added.

(ZH) Desperate London Bankers Brace For Thousands Of Job Cuts As ‘Summer Of Gloom’ Begins

(ZH)

Yesterday, we reported about the increasingly dejected atmosphere at Deutsche Bank’s Wall Street headquarters, where the looming fear that the bank is going to gut, shutter or sell most, if not all, of its US i-banking business has inspired those remaining employees to openly hunt for other jobs, while some managers and more junior employees are treating every day like its a Summer Friday.

City

But while things are certainly looking dire at 60 Wall Street, in the UK, where the looming uncertainty over Brexit is being compounded by a continent-wide slowdown, the impact on the financial services industry is being acutely felt, particularly among interns and junior analysts who are worried that they won’t be able to find permanent jobs in the City as thousands of job cuts loom.

Chart

According to Bloomberg, which apparently sent a team of reporters to hang out in some popular London pubs frequented by finance types. Though it’s hardly a lasting comfort, some who have lost their jobs are finding camaraderie and a “safe space” with others in a similar position.

Recently, Nomura slashed dozens of brokerage jobs. Afterwards, those who lost out met in the pub to share a few round of goodbye drinks. The expectations for job losses this summer are so severe, that at least one of BBG’s sources deemed the summer of 2019, the “summer of gloom”.

Japan’s biggest brokerage let about 30 people go that day in April. Summer has arrived in London, but the smiles are likely to remain frozen in the financial community as HSBC Holdings Plc and Deutsche Bank AG join Nomura in implementing thousands of job reductions. In an atmosphere that may be the gloomiest since the financial crisis, some are jumping before they’re pushed.

“It’s one of the worst London job markets I have ever seen outside of a crisis,” said Stephane Rambosson, founder of Vici Advisory, a London-based executive search firm. “I think there’s a real possibility that you could see more than 5,000 jobs lost by the end of the year.

“Cuts are concentrated at non-U.S. investment banks. European lenders, hobbled by weak domestic growth and negative interest rates, have been losing market share for years. Experienced bankers have seen contractions before, but there’s a feeling this time is different. It’s not just shaky markets, trade tensions and Brexit: Automation is making some banking skills obsolete.

One now-former banker even joked to BBG that some of his ex-colleagues have been forced to give up their dream of working in finance, and are instead pursuing employment at…a blockchain startup. Others are exploring opportunities in the cannabis industry.

In the City, the anxiety is palpable as some bankers quit rather than wait to be laid off.

“People are stressed out and desperately looking for new things, because they know it’s not going to be easy to find a job at another bank,” said Rambosson, himself a former investment banker. “We see people quitting before the cuts come and taking the view that now’s the right time to get out.”

With all of this in mind, we can’t blame traders for being cynical.

eeThings will get worse,” said Amrit Shahani, research director at Coalition. “We expect a further 10% reduction in investment bank headcount in the U.K. over the next two years, partly due to Brexit job moves.”

It’s as good a time as any to learn that money can’t buy happiness. And while some former bankers might struggle to get over it, for others, it’s never too late to pivot to fintech.

(Reuters) China pledges to scrap financial sector ownership limits in 2020, one year early

(Reuters)

DALIAN, China (Reuters) – China will end ownership limits for foreign investors in its financial sector in 2020, a year earlier than scheduled, to show the world it will keep opening up its markets, Premier Li Keqiang said on Tuesday.FILE PHOTO: China’s Premier Li Keqiang speaks to Netherlands’ Prime Minister Mark Rutte and Former U.N. Secretary General Ban Ki-moon during the Global Commission on Adaptation ceremony, at the Great Hall of the People in Beijing, China June 27, 2019. Fred Dufour/Pool via REUTERS

China will also further open its manufacturing sector, including the auto industry, while reducing its negative investment list that restricts foreign investment in some areas, Li told the World Economic Forum in the northeastern Chinese port city of Dalian.

Beijing’s signal that it is quickening the pace of opening up came after the presidents of China and the United States agreed over the weekend to restart trade talks in another attempt to strike a deal and end a bruising tariff war.

But analysts doubt the ceasefire will lead to a sustained easing of tensions, and warn lingering uncertainty could dampen corporate spending and global growth.

“We will achieve the goal of abolishing ownership limits in securities, futures, life insurance for foreign investors by 2020, a year earlier than the original schedule of 2021,” Li said.

Foreign investment banks such as Morgan Stanley (MS.N) are looking to join HSBC Holdings PLC (HSBA.L), JPMorgan Chase & Co (JPM.N), Nomura Holdings Inc (8604.T) and UBS Group AG (UBSG.S) in owning controlling stakes in onshore securities joint ventures in China under liberalized rules announced in 2017.

RELATED COVERAGE

“JPMorgan welcomes any decision made by the Chinese government that looks to liberalize its financial sector further,” said JPMorgan China CEO Mark Leung.

Citigroup (C.N), which is in the process of setting up a majority-owned securities joint venture in China, also applauded the news.

“Citi welcomes any move that leads to the further opening up of the Chinese financial system,” said a Hong Kong-based spokesman.

The United States and other countries in the West have long complained that Beijing is blocking foreign access to its fast-growing financial markets and not allowing a level playing field when multinational companies are allowed in.

But in recent months, China has allowed many foreign financial firms to either set up new businesses onshore or expand their presence through majority ownership in domestic joint ventures across mutual funds, insurance and brokerage businesses.

Sources with direct knowledge of the matter previously told Reuters that Morgan Stanley is likely to get regulatory approval for owning a majority stake in the second half of this year.

Li also said the government will reduce restrictions next year on market access for foreign investors in the value-added telecoms services and transport sectors.

On Sunday, China cut the number of sectors subject to foreign investment restrictions, a widely expected move, to 40 from 48 in the previous version, published in June last year.

GLOBAL RISKS

On Saturday, leaders of the Group of 20 major economies warned of growing risks to the global economy but stopped short of denouncing protectionism, calling instead for a free and fair trade environment after talks some members described as difficult.

Echoing the sentiment, Li said protectionism is rising, but did not make references to specific economies.

“In the face of pressure from a slowing global economy, I believe people are all in the same boat. We should promote the spirit of partnership, carry out equal consultations, seek common ground while reserving differences and manage and control disputes,” Li said.

The U.S.-China trade war has hit business confidence worldwide, disrupted supply chains and shaken financial markets, adding to worries about a global economic slowdown.

Fallout from the dispute is spreading. Business surveys this week showed factory activity shrank in China and much of the rest of Asia in June, as well as in Europe, while manufacturing growth cooled in the United States, keeping pressure on policymakers to shore up growth.

Rising worries over global growth have compelled some central banks, such as those in Australia, New Zealand, India and Russia to cut interest rates.

“Currently, global economic risks are rising somewhat, international investment and trade growth is slowing, protectionism is rising and unstable and uncertain factors are increasing,” Li said.

“We should actively cope with this. Some countries have taken measures including cutting interest rates, or sent clear signals on quantitative easing.”

But China will not resort to competitive currency devaluation, Li said, and will keep the yuan exchange rate CNY=CFXS basically stable at a reasonable and balanced level.

China is likely to hit its economic growth target of 6%-6.5% this year provided the trade dispute with the United States does not worsen, and hence will not need “very big” stimulus measures to prop up growth, a central bank adviser said on Monday.

The People’s Bank of China (PBOC) has already slashed the amount of cash banks must hold as reserve six times since early 2018 to help turn around soft credit growth, and more cuts in banks’ reserve requirement ratios (RRRs) are widely expected in coming months.

China has also injected large amounts of liquidity into the financial system and guided short-term interest rates lower, while ramping up infrastructure spending and cutting taxes.

“The strength of the tax cuts on the fiscal side is unprecedented, and this measure is the most fair, direct and effective,” Li said in a meeting with business executives in Dalian. “As for monetary policy, we will make appropriate fine-tuning while keeping it prudent.”

“We can say that money supply is reasonably ample, but the question is how to make SMEs and private firms feel a significant drop in real interest rates by the end of this year through effective transmission measures.”

P.O. (CNBC) Deutsche Bank reportedly considering up to 20,000 job cuts

P.O.

In my opinion, and as i said countless times, Deutsche Bank does not even stand a chance of surviving.

The internal culture and practices are wrong and the legal liabilities are not even possible to put an estimate on.

I am afraid the bank has been belly up for years.

Francisco (Abouaf) de Curiel Marques Pereira



(CNBC) Deutsche Bank is considering cutting 15,000 to 20,000 jobs, or more than one in six full-time positions globally, the Wall Street Journal reported on Friday, citing people familiar with the discussions.

The layoffs would probably take place over more than a year and would spread across regions and businesses, the Journal said.

Top-level talks about the restructuring took place on Thursday and Friday, but no final decisions have been made, a source close to the matter told Reuters.

Deutsche Bank is completing a plan that may eliminate hundreds of positions in equities trading and research, as well as derivatives trading, as part of a broad restructuring, Bloomberg reported on Friday, citing sources.

Sources told Reuters last week that the bank plans to cut the size of its U.S. equities business, leaving only a skeleton operation in place to service corporate and high-net-worth clients.

Members of Deutsche’s supervisory board discussed those plans on a call earlier this month and agreed that large-scale cuts were necessary in the bank’s U.S. equities and rates trading businesses, Reuters reported, citing the sources.

Chief Executive Officer Christian Sewing is trying to convince investors he can turn around Germany’s biggest bank, whose shares hit a record low this month. He told investors at the annual meeting last month that Deutsche was prepared to make “tough cutbacks” at its investment bank.

(ECO) JPMorgan sobe preço-alvo do BCP. Vê banco a valer cinco mil milhões de euros na bolsa

(ECO) Banco de investimento norte-americano subiu o preço-alvo das ações do banco liderado por Miguel Maya. Incluiu o BCP na lista de favoritos.

O BCP volta a estar em entre as ações preferidas do JPMorgan. O banco de investimento norte-americano incluiu a instituição financeira portuguesa na lista de top picks depois de ter elevado o preço-alvo das ações para 0,33 euros, avaliação que confere ao banco um potencial de valorização superior a 20%.

Caso as ações atinjam os 0,33 euros, o banco poderá atingir uma capitalização de mercado de 4,98 mil milhões de euros, tendo em conta os 15 mil milhões de ações do banco. O valor significaria um aumento de quase 900 mil euros face ao valor atual.

Na última sessão, os títulos do BCP fecharam nos 0,2719 euros, pelo que o novo preço-alvo confere às ações um potencial de subida de 21,4%. Esta segunda-feira, o BCP reage em alta à nota do JPMorgan e segue a ganhar 0,99% para 0,2746 euros, numa altura em que o PSI-20 avança 0,80% e o índice pan-europeu do setor Stoxx Banks soma 1,40%.

O BCP já tinha estado na lista de top picks do JPMorgan em janeiro do ano passado, mas tinha entretanto abandonado a lista. Ao longo desse tempo, o banco liderado por Miguel Maya consolidou a recuperação após a crise, com lucros de 301,1 milhões de euros no ano passado. 10% desse valor foi usado para o regresso ao pagamento de dividendos (apesar de terem sido de apenas 0,002 euros por ação), uma década depois de ter cortado a remuneração acionista.

A média dos preços-alvos das ações dos analistas que seguem o BCP aponta para que as ações atinjam os 0,32 euros, segundo dados compilados pela Reuters. Seis recomendam a compra, enquanto três analistas sugerem a manutenção das ações em carteira e apenas um a venda.

(Reuters) Exclusive: Johnson courts financiers in race to become PM – sources

(Reuters)

Boris Johnson, the frontrunner in the race to become Britain’s next prime minister, has met hedge fund and private equity executives to raise donations for his leadership campaign, according to sources familiar with the matter.

Johnson, who on Tuesday reaffirmed his determination to take Britain out of the European Union on Oct 31, is seeking to build up a war chest for his campaign and rebuild ties with executives, which were strained last year by his expletive four-letter-word attack on business.

Johnson, 55, held a breakfast meeting on June 18 with potential donors at 5 Hertford Street, a private members’ club in London’s wealthy Mayfair district, the sources said. The club has a strict dress code which requires men to wear a jacket, except on the dance floor after 23:00.

Johnson’s spokesman did not respond to request for comment, and 5 Hertford Street declined to comment.

Johnson, a former mayor of London who during the leadership campaign has called for tax cuts for higher-earning Britons, has benefited in the past from financiers’ donations.

The largest single donation to his campaign during this parliament has come from the hedge fund manager Jon Wood, the founder of SRM Global Fund, who has donated £75,000, the register of lawmakers’ financial interests shows.

Wood could not be reached for comment.

Johan Christofferson, co-founder of U.S. hedge fund Christofferson Robb, has donated £36,000 to the Johnson campaign, the register shows.

The register is updated every two weeks. Current entries run until June 17 so it was not yet clear whether further donations had been made following the June 18 meeting.

“I DEFENDED BANKERS”

Johnson and his leadership rival, foreign minister Jeremy Hunt, must each raise £150,000 for their campaigns, under the rules of their governing Conservative Party. The funds help cover campaign costs, including travel to the 16 debates nationwide they are due to attend.

The Conservative Party’s approximate 160,000 paid-up members will choose between the two men, with the result due on July 23. The new party leader automatically becomes prime minister.

Johnson has earned more than £700,000 during this parliamentary sitting – since the 2017 national election – from speaking engagements, publishing and journalism, the parliamentary register shows.

The June 18 meeting in Mayfair followed another breakfast earlier on the same day with company executives.

Johnson held that breakfast at Somerset House, a neo-classical building overlooking the Thames, according to two sources briefed on the talks.

One of those sources said the executives attended because they expect Johnson to become the next prime minister.   

Johnson’s record as mayor of London, when he championed financial services, has been clouded by his reported dismissal of companies’ concerns last year about leaving the EU with the comment “fuck business”. 

At the weekend, Johnson confirmed he made the comment, describing it as a stray remark to the Belgian ambassador, but claimed he is Britain’s most pro-business politician.

“I can’t think of any other politician, even Conservative politician, who from the crash of 2008 onwards actually stuck up for the bankers,” he told a Conservative Party hustings.

“Can you think of anybody who stuck up for the bankers as much as I did? I defended them day in, day out, from those who frankly wanted to hang them from the nearest lamppost.”

Business leaders say their relationship with ministers in Prime Minister Theresa May’s were strained because they were initially kept at arm’s length.

Some ministers, including Johnson – who served briefly as foreign minister – also accused companies of issuing exaggerated threats about the damage Brexit would cause to the UK economy.

(ZH) Merrill Lynch Caught Criminally Manipulating Precious Metals Market “Thousands Of Times” Over 6 Years

(ZH)

Remember when it was pure tinfoil-hat conspiracy theory to accuse one or more banks of aggressively, compulsively and systematically manipulating the precious metals – i.e., gold and silver – market? We do, after all we made the claim over and over, while demonstrating clearly just how said manipulation was taking place, often in real time.

Well, it’s always good to be proven correct, even if it is years after the fact.

On Tuesday after the close, the CFTC announced that Merrill Lynch Commodities (MLCI), a global commodities trading business, agreed to pay $25 million to resolve the government’s investigation into a multi-year scheme by MLCI precious metals traders to mislead the market for precious metals futures contracts traded on the COMEX (Commodity Exchange Inc.). The announcement was made by Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division and Assistant Director in Charge William F. Sweeney Jr. of the FBI’s New York Field Office. In other words, if the Merrill Lynch Commodities group was an individual, he would have gotten ye olde perp walk.

As MLCI itself admitted, beginning in 2008 and continuing through 2014, precious metals traders employed by MLCI schemed to deceive other market participants by injecting materially false and misleading information into the precious metals futures market.

They did so in the now traditional market manipulation way – by placing fraudulent orders for precious metals futures contracts that, at the time the traders placed the orders, they intended to cancel before execution.  In doing so, the traders intended to “spoof” or manipulate the market by creating the false impression of increased supply or demand and, in turn, to fraudulently induce other market participants to buy and to sell futures contracts at quantities, prices and times that they otherwise likely would not have done so. Over the relevant period, the traders placed thousands of fraudulent orders.

Of course, since we are talking about a bank, and since banks are in charge of not only the DOJ, and virtually every other branch of government, not to mention the Fed, nobody will go to jail and MLCI entered into a non-prosecution agreement and agreed to pay a combined – and measly – $25 million in criminal fines, restitution and forfeiture of trading profits.

Under the terms of the NPA, MLCI and its parent company, Bank of America, have agreed to cooperate with the government’s ongoing investigation of individuals and to report to the Department evidence or allegations of violations of the wire fraud statute, securities and commodities fraud statute, and anti-spoofing provision of the Commodity Exchange Act in BAC’s Global Markets’ Commodities Business, whose function is to conduct wholesale, principal trading and sales of commodities.  Laughably, MLCI and BAC also agreed to enhance their existing compliance program and internal controls, where necessary and appropriate, to ensure they are designed to detect and deter, among other things, manipulative conduct in BAC’s Global Markets Commodities Business.

Translation: it will be much more difficult to catch them manipulating the market next time.

The Department reached this resolution based on a number of factors, including MLCI’s ongoing cooperation with the United States – which means the DOJ must have had the bank dead to rights with many traders potentially ending up in jail – and MLCI and BAC’s remedial efforts, including conducting training concerning appropriate market conduct and implementing improved transaction monitoring and communication surveillance systems and processes. Translation – no longer boasting about market manipulation on semi-public chatboards.

The Commodity Futures Trading Commission also announced a separate settlement with MLCI today in connection with related, parallel proceedings.  Under the terms of the resolution with the CFTC, MLCI agreed to pay a civil monetary penalty of $11.5 million, along with other remedial and cooperation obligations in connection with any CFTC investigation pertaining to the underlying conduct.

As part of the investigation, the Department obtained an indictment against Edward Bases and John Pacilio, two former MLCI precious metals traders, in July 2018.  Those charges remain pending in the U.S. District Court for the Northern District of Illinois. 

This case was investigated by the FBI’s New York Field Office.  Trial Attorneys Ankush Khardori and Avi Perry of the Criminal Division’s Fraud Section prosecuted the case.  The CFTC also provided assistance in this matter.

Oh, and for anyone asking if they will get some of their money back for having been spoofed and manipulated by Bank of America, and countless other banks, into selling to buying positions that would have eventually made money, the answer is of course not.

(ZH) “It Would Be An Earthquake” – Three Chinese Banks Tumble After US Threatens To Cut Them Off From SWIFT

(ZH) In news that initially did not receive much prominence, on Monday a US judge found three large Chinese banks — reportedly the state-owned Bank of Communications, China Merchants Bank, and Shanghai Pudong Development Bank — in contempt for refusing to comply with subpoenas in an investigation into North Korean sanctions violations. This could open the door for them to be cut off from the US financial system, i.e. SWIFT.

Should it occur, to say that China will not take that well is as large an understatement as one can conceive of. It would be an earthquake”, commented Rabobank’s Michael Every.

The stunning development follows a May district judge order that three Chinese banks comply with U.S. investigators’ demands that they hand over records connected to the alleged movement of tens of millions of dollars in violation of international sanctions on North Korea. The publicly released court document did not name the banks, the Hong Kong company, or the North Korean entity at that time.

As the WaPo adds, according to a 2017 ruling by the US DOJ, the banks were accused of working with a Hong Kong company, which allegedly laundered more than $100 million for North Korea’s sanctioned Foreign Trade Bank. The newspaper said the bank at risk of losing access to U.S. dollars appeared to be Shanghai Pudong Development Bank, whose ownership structure, limited U.S. presence and alleged conduct with other banks matched with the details disclosed in the court rulings.

Shanghai Pudong Development Bank doesn’t have U.S. branch operations but maintains accounts in that country to handle dollar transactions, the report said, adding the subpoena battle will go before a federal appeals court in Washington on July 12.

“The ruling means that Attorney General William P. Barr or Treasury Secretary Steven Mnuchin can terminate the bank’s U.S. account and ability to process U.S. dollar transactions,” the Post said.

Shanghai Pudong Development Bank, asked about the report that it could lose access to the U.S. financial system, said in a statement that it will strictly abide by the relevant laws and regulations. Meanwhile, China Merchants Bank told Reuters on Tuesday it complies with related United Nations resolutions and Chinese laws, and is not involved in any investigations related to possible violations of sanctions.

Bank of Communications, China’s fifth-largest bank, said the case involved U.S. courts seeking to obtain customer information that is stored outside the United States from Chinese commercial banks.

Needless to say, the stock prices of all three Chinese banks – which are listed on the Shanghai Stock Exchange – tumbles with shares of China Merchants Bank closed down 4.82%, after being off 8.5% earlier in the day, while Shanghai Pudong Development Bank declined 3.08% and Bank of Communications dropped 3.02%.

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YUAN TALKS@YuanTalks

China Merchants Bank, Bank of Communications & Shanghai Pudong Development Bank said they complies with UN resolutions and Chinese laws, not involved in any investigations related to possible violations of sanctions.197:49 AM – Jun 25, 201917 people are talking about thisTwitter Ads info and privacy

Some more details from the original report:  The subpoenas targeting thre three banks were issued in December 2017 as part of a U.S. investigation into violations of sanctions targeting North Korea’s nuclear weapons program, including money laundering and contravention of the U.S. Bank Secrecy Act.

Geng Shuang, a spokesman at the Chinese foreign ministry, said “We ask our companies and overseas branches to abide by local regulations and laws and operate within the framework of law, and cooperate with the local judicial and law enforcement bodies. At the same time, we are against U.S. so-called long arm jurisdiction on Chinese companies. We hope the U.S. will step up bilateral cooperation on finance with other countries,” Geng said at a daily briefing in Beijing.

Currently, there’s no conclusive information that Chinese banks will be sanctioned, PBOC publication Financial News reported on Tuesday, citing an unnamed industry veteran. Chinese banks will not lose their U.S. dollar clearance qualifications, and the market should not over-interpret this, the same person was quoted as saying.

The news that the US may use SWIFT as leverage against China comes just days before the G-20 summit in Japan this weekend, which will be the first meeting between U.S. President Donald Trump and Chinese President Xi Jinping since trade talks between the two countries broke off in May. They will discuss issues such as tariffs, subsidies, technology, intellectual property and cyber security, among others.

The U.S. government has put some Chinese firms including telecoms equipment maker Huawei Technologies Co Ltd on a trade blacklist while China is also drawing up its own “Unreliable Entities List” of foreign firms, groups and individuals.

P.O. (NYT) Deutsche Bank Faces Criminal Investigation for Potential Money-Laundering Lapses

P.O.

By George!
It’s Deutsche Bank again!

FCMP

(NYT) Federal authorities are investigating whether Deutsche Bank complied with laws meant to stop money laundering and other crimes, the latest government examination of potential misconduct at one of the world’s largest and most troubled banks, according to seven people familiar with the inquiry.

The investigation includes a review of Deutsche Bank’s handling of so-called suspicious activity reports that its employees prepared about possibly problematic transactions, including some linked to President Trump’s son-in-law and senior adviser, Jared Kushner, according to people close to the bank and others familiar with the matter.

The criminal investigation into Deutsche Bank is one element of several separate but overlapping government examinations into how illicit funds flow through the American financial system, said five of the people, who were not authorized to speak publicly about the inquiries. Several other banks are also being investigated.

The F.B.I. recently contacted the lawyer for a Deutsche Bank whistle-blower, Tammy McFadden, who publicly criticized the company’s anti-money-laundering systems, according to the lawyer, Brian McCafferty.

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Ms. McFadden, a former anti-money-laundering compliance officer at the bank, told The New York Times last month that she had flagged transactions involving Mr. Kushner’s family company in 2016, but that bank managers decided not to file the suspicious activity report she prepared. Some of her colleagues had similar experiences in 2017 involving transactions in the accounts of Mr. Trump’s legal entities, although it was not clear whether the F.B.I. was examining the bank’s handling of those transactions.

The same federal agent who contacted Ms. McFadden’s lawyer also participated in interviews of the son of a deceased Deutsche Bank executive, William S. Broeksmit. Agents told the son, Val Broeksmit, that the Deutsche Bank investigation began with an inquiry into the bank’s work for Russian money launderers and had expanded to cover a broader array of potential misconduct at the bank and at other financial institutions. One element is the banks’ possible roles in a vast money-laundering scandal at the Danish lender Danske Bank, according to people briefed on the investigation.

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The broader scope of the investigations and many details of precisely what is under scrutiny are unclear, and it is not known whether the inquiries will result in criminal charges. In addition to the F.B.I., the Justice Department’s Money Laundering and Asset Recovery Section in Washington and the United States attorney’s offices in Manhattan and Brooklyn are conducting the investigations. Representatives for the agencies declined to comment.

Deutsche Bank has said that it is cooperating with government investigations and that it has been taking steps to improve its anti-money-laundering systems.

Editors’ Picks

The Mystery of the Miserable Employees: How to Win in the Winner-Take-All EconomyJeremy Lin, ‘Reppin’ Asians With Everything I Have,’ Is Bigger Than an N.B.A. TitleOne Reluctant Night Out Leads to a Forever DateTammy McFadden said Deutsche Bank managers had declined to send the government a suspicious activity report she wrote.CreditWillie J. Allen Jr. for The New York Times

Tammy McFadden said Deutsche Bank managers had declined to send the government a suspicious activity report she wrote.
Tammy McFadden said Deutsche Bank managers had declined to send the government a suspicious activity report she wrote.CreditWillie J. Allen Jr. for The New York Times

Even so, the governmental scrutiny — from regulators, members of Congress and now the Justice Department and F.B.I. — has been a drag on the bank’s stock price, which is hovering near historic lows because of investors’ doubts about its future.

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The congressional investigations are focused on Deutsche Bank’s close relationship with Mr. Trump and his family. Over the past two decades, it was the only mainstream financial institution consistently willing to do business with Mr. Trump, who had a history of defaulting on loans. The bank lent him a total of more than $2 billion, about $350 million of which was outstanding when he was sworn in as president.

Two House committees have subpoenaed Deutsche Bank for records related to Mr. Trump and his family, including records connected to the bank’s handling of potentially suspicious transactions. The president has sued to block Deutsche Bank and Capital One, where he also holds money, from complying with the subpoenas. A federal judge rejected Mr. Trump’s request for an injunction, and the president has appealed that ruling.

The Justice Department has been investigating Deutsche Bank since 2015, when agents were examining its role in laundering billions of dollars for wealthy Russians through a scheme known as mirror trading. Customers would use the bank to convert Russian rubles into dollars and euros via a complicated series of stock trades in Europe and the United States.

In early 2017, federal and state regulators in the United States and British authorities imposed hundreds of millions of dollars in civil penalties on Deutsche Bank for that misconduct, but prosecutors never brought a criminal case against the bank. That led some senior Deutsche Bank executives to believe they were in the clear, according to people familiar with their thinking.

By last fall, though, federal agents were investigating a wider range of anti-money-laundering lapses and other possible misconduct at the bank.

F.B.I. agents met this year with Val Broeksmit, whose father was a senior Deutsche Bank executive who committed suicide in January 2014. Mr. Broeksmit said he had provided the agents with internal bank documents and other materials that he had retrieved from his father’s personal email accounts.

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Until his death, William Broeksmit sat on the oversight board of a large Deutsche Bank subsidiary in the United States, Deutsche Bank Trust Company Americas, which regulators have criticized for having weak anti-money-laundering systems.

Many of the bank’s anti-money-laundering operations are based in Jacksonville, Fla., where Ms. McFadden was one of hundreds of employees vetting transactions that computer systems flagged as potentially suspicious.Ms. McFadden worked in Deutsche Bank’s offices in Jacksonville, Fla. Current employees there have discussed the possibility of the building’s being raided by federal agents.CreditWillie Jr. Allen for The New York Times

Ms. McFadden worked in Deutsche Bank’s offices in Jacksonville, Fla. Current employees there have discussed the possibility of the building’s being raided by federal agents.
Ms. McFadden worked in Deutsche Bank’s offices in Jacksonville, Fla. Current employees there have discussed the possibility of the building’s being raided by federal agents.CreditWillie Jr. Allen for The New York Times

Ms. McFadden told The Times that she had warned in summer 2016 about transactions by the Kushner Companies involving money being sent to Russian individuals. Other Deutsche Bank employees prepared reports in 2017 flagging transactions involving legal entities associated with Mr. Trump, including his now-defunct charitable foundation, according to current and former bank employees. In both instances, the suspicious activity reports were never filed with the Treasury Department.

Deutsche Bank officials have said that the reports were handled appropriately and that it is not uncommon for managers to overrule employees and opt not to file suspicious activity reports with the government.

There is no indication that Kushner Companies is under investigation. The company said any allegations regarding its relationship with Deutsche Bank that involved money laundering were false. A Trump Organization spokeswoman said that she had no knowledge of any Deutsche Bank transactions being flagged.

The federal Bank Secrecy Act requires financial institutions to alert the government if they suspect that transactions involve criminal proceeds or are being used for illegal purposes. Banks can face civil or criminal penalties for failing to file reports about transactions that are found to be illegal. In recent years, banks like JPMorgan Chase and HSBC have incurred such penalties.

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Banks argue that when they err on the side of reporting potential problems, they end up flooding the government with false leads.

Former Deutsche Bank employees, speaking on the condition of anonymity, told The Times that the company had pushed them to rush their reviews of transactions and that managers sometimes created obstacles that discouraged them from filing suspicious activity reports.

Deutsche Bank has scrambled to toughen its anti-money-laundering procedures.

To address complaints about inadequate staffing, it brought in contractors to supplement its Jacksonville work force, although some employees said that the contractors were inexperienced and lacked the appropriate training.

Deutsche Bank also recently sent letters to hundreds of companies, warning that they could be cut off from the bank’s services if they did not swiftly provide up-to-date information about the sources of their money and the names of their business partners, according to bank employees who saw the letters. Deutsche Bank officials said the letters, first reported by the Financial Times, were part of their efforts to comply with “know your customer” rules, a crucial component of any bank’s anti-money-laundering efforts.

In Jacksonville, Deutsche Bank’s anti-financial-crime staff works in a white, three-story building surrounded by palm trees. The F.B.I. has a field office just down the road, clearly visible from the bank’s campus.

Bank employees recently have taken to joking that when the F.B.I. raids their offices, they will be able to see the agents coming.

(Reuters) Deutsche Bank to set up 50 billion euro bad bank: FT

(Reuters) Deutsche Bank is planning to overhaul its trading operations by creating a “bad bank” to hold tens of billions of euros of assets and shrinking or shutting its U.S. equity and trading businesses, the Financial Times reported on Sunday.

The bad bank would house or sell assets valued at up to 50 billion euros ($56.06 billion)- after adjusting for risk – and comprise mainly long-dated derivatives, the FT reported, citing four people briefed on the plan.

With the creation of the bad bank, Chief Executive Officer Christian Sewing is shifting the German lender away from investment banking and focusing on transaction banking and private wealth management, the newspaper said.

As part of the restructuring, the lender’s equity and rates trading units outside continental Europe will be shrunk or closed entirely, the report said.

The bank is planning cuts at its U.S. equities business, including prime brokerage and equity derivatives, to win over shareholders unhappy about its performance, four sources familiar with the matter told Reuters in May.

“As we said at the AGM on May 23, Deutsche Bank is working on measures to accelerate its transformation so as to improve its sustainable profitability. We will update all stakeholders if and when required,” Deutsche Bank said in an emailed statement on Sunday in response to the FT report.

Sewing could announces announce the changes along with Deutsche Bank’s half-year results in late July, the FT reported.

(ZH) Venezuela Defaults On $750 Million Gold-Backed Swap With Deutsche Bank

(ZH)

Somewhere Hugo Chavez, who several years ago successfully repatriated much of Venezuela’s gold, is spinning in his grave.

It started in March, when Venezuela’s embattled leader Nicolas Maduro defaulted on a $1.1 billion gold-backed loan with Citi, in the process losing several tons of gold placed as collateral by Venezuela’s central bank after the deadline for repurchasing them expired. Now, Bloomberg reports that Venezuela has also defaulted on a gold swap agreement valued at $750 million with Deutsche Bank, prompting the German bank to seize the precious metal which was used as collateral, and close out the contract.Maduro and a stack of 12 Kilogram gold ingots.

As part of a financing agreement signed in 2016 which we profiled here, Venezuela received a cash loan from Deutsche Bank and put up 20 tons of gold as collateral. The agreement, which was set to expire in 2021, was settled early due to missed interest payments as Venezuela has now effectively run out of foreign reserves.

It was the second time this year that the Maduro’s regime has failed to make good on financing agreements which have resulted in losses at a time when gold reserves are already at a record low. As we have noted previously, for example in “Venezuela Prepares To Liquidate Its Remaining Gold Holdings To Pay Coming Debt Maturities” Venezuela’s dwindling gold holdings had become one of Maduro’s last remaining sources of cash keeping his regime afloat and his military forces loyal. Before the central bank missed the abovementioned March deadline to buy back gold from Citigroup for nearly $1.1 billion, the Bank of England refused to give back $1.2 billion worth of Venezuelan gold.

Meanwhile, as Bloomberg reports, opposition leader Juan Guaido’s parallel government has asked the bank to deposit $120 million into an account outside President Nicolas Maduro’s reach, which is the difference in price from when the gold was acquired to current levels.

“We’re in touch with Deutsche Bank to negotiate the terms under which the difference owed to the central bank will be paid to the legitimate government of Venezuela,” said Jose Ignacio Hernandez, Guaido’s U.S.-based attorney general. “Deutsche Bank can’t risk negotiating with the central bank’s illegitimate authorities,” particularly after it was sanctioned by the U.S. government, Hernandez said, even though the military has stubbornly refused to go along with the US attempted government coup, leaving the seized gold in limbo.

While insolvent Venezuela, which defaulted on its dollar-denominated bonds in 2017, is becoming increasingly cut off from the global financial network due to sanctions, it still managed to sell $570 million in gold last month, prompting total foreign reserves to tumble to a 29-year low of $7.9 billion.

Meanwhile, Venezuela has not only become a symbol of the destructive influence of socialism and associated hyperinflation, but a case study of how to obliterate the only real hard currency left when everything else is gone: the government managed to blow through more than 40% of Venezuela’s gold reserves last year, selling to firms in the United Arab Emirates and Turkey in a desperate bid to fund government programs and pay creditors.

(JN) DBRS retira BCP do “lixo” e sobe rating da CGD

(JN)

A DBRS elevou o rating do BCP e da CGD em um nível. A notação do banco liderado por Miguel Maya está agora no nível de investimento de qualidade.

A agência de notação financeira do Canadá subiu as notações financeiras do Banco Comercial Português e da Caixa Geral de Depósitos, que estão agora na categoria de investimento de qualidade, ou seja, fora do território de “lixo”.

O rating dos dois bancos subiu um nível. O do BCP passou de BB (alto) para BBB (baixo), o que já se encontra fora de lixo, sendo que a tendência é “estável”. 

A notação da CGD, que já estava em investimento de qualidade, passou de BBB (baixo) para BBB, sendo que a tendência também melhorou de “estável para “positiva”.

O banco do Estado tem agora um rating igual ao atribuído pela DBRS à República Portuguesa (BBB), que se situa dois níveis acima de “lixo”, enquanto a classificação do BCP está um patamar abaixo.

As restantes agências de “rating” continuam a atribuir aos dois maiores bancos portugueses uma notação que se encontra no grau especulativo. A Moody’s tem um rating de Ba1 para o BCP e para a CGD, enquanto a Fitch atribui uma classificação dois níveis abaixo de “lixo” aos dois bancos (BB).  

“Esta ação da DBRS reflete a melhoria da rendibilidade, suportada pela melhoria dos resultados em Portugal, a manutenção de elevados níveis de eficiência, a redução do custo do risco e a aceleração da redução” dos Non-Performing Exposures (NPE), que correspondem aos ativos não rentáveis, como o crédito malparado, refere um comunicado do BCP enviado à CMVM.

“Reconhecimento importante” 

Na nota onde anuncia a melhoria do rating do BCP, a DBRS diz que a notação financeira continua a refletir “o ainda elevado custo do risco e o ‘stock’ elevado de NPE, que apesar de estar a melhorar, permanece acima dos pares europeus”. A tendência estável deve-se à posição de “funding” estável e rácios de capital “aceitáveis”.

Para uma nova subida de “rating”, será necessário “mais reduções do NPE, bem como um ‘track record’ mais prolongado na geração de lucros” e “maior visibilidade no ‘outlook’ da rentabilidade na Polónia”.

Numa nota enviada ao Negócios, Miguel Maya, CEO do BCP, diz que esta subida de “rating” ao BCP “reflete o esforço continuo e bem-sucedido” do banco “na melhoria da qualidade do balanço e o persistente trabalho realizado para aumentar a eficiência e a rendibilidade do banco”.

Assinala ainda que representa um “reconhecimento importante quer do valor do caminho que definimos no plano estratégico quer da confiança que os profissionais do grupo merecem ao nível da capacidade de entrega dos objetivos que assumimos perante o mercado”.

CGD com base de capital “sólida”
Também num comunicado ao regulador, a CGD diz que nesta subida do rating “a DBRS destaca os progressos no aumento da rentabilidade e na melhoria da qualidade dos ativos, através da redução de non-performing loans [NPL], bem como a posição de liderança de mercado da CGD, e a sua sólida base de capital e liquidez”.


Sobre a CGD, a DBRS assinala que o atual rating continua a refletir “o ainda elevado montante de NPL, bem como os desafios para reforçar as receitas, sobretudo na margem financeira”.

P.O. (FT) Why Goldman Sachs should buy Deutsche Bank

P.O.

Personally i would love it to happen.
We would get rid of two evils:
The Vampires of Wall Street and the eternally broke Deutsche Bank.
DB problems, particularly the litigation problems,would eat the Vampires of Wall Street’s (Goldman Sachs) capital in no time.
As the French would say:
Bon debarras!
(Good riddance!)

Francisco (Abouaf) de Curiel Marques Pereira



(FT) Why Goldman Sachs should buy Deutsche Bank

US group wants growth in transaction banking and a German deal could help achieve that