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Bloomberg's Silver On Deutsche Bank Mismarking (Correct)(Audio) · Bloomberg Intelligence

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  Speaker 1: You're listening to Taking Stock with Kathleen Hayes and Pim
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  Speaker 1: Fox on Bloomberg Radio. Deutsche Bank. The shares of Deutsche
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  Speaker 1: Bank have fallen by more than forty eight percent this year.
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  Speaker 1: Many investors are concerned that the lender faces a hefty
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  Speaker 1: fine from the US Justice Department. But could there be
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  Speaker 1: more to worry about in Deutsche Bank. Vernon Silver is
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  Speaker 1: our projects and investigations reporter for Bloomberg News and our
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  Speaker 1: Rome Bureau, and he joins us now to tell us more.
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  Speaker 1: Vernon tell us about miss marking deals and is thirty seven?
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  Speaker 1: Is thirty seven deals? Is that considered to be well,
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  Speaker 1: you go ahead and tell the story because this involves
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  Speaker 1: a lot of money. Yeah, Here's here's what's interesting here
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  Speaker 1: Here in Italy, there's a well known scandal, which is
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  Speaker 1: how the oldest bank in the world, Montaski, allegedly used
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  Speaker 1: a transaction to conceal hundreds of millions of losses. But
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  Speaker 1: on the other end of that trade with Deutsche Bank,
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  Speaker 1: and the investigations into that led to open a door
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  Speaker 1: cannon worms into a whole bunch of other transactions in
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  Speaker 1: the range of almost twelve billion dollars worth in which
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  Speaker 1: the accounting by Deutsche Bank on its side of the
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  Speaker 1: deal was similar to what they did with Monty Passkey.
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  Speaker 1: Now there is no covering up of of losses the
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  Speaker 1: way they did with Passkey. But what's interesting about Deutsche
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  Speaker 1: Bank's own accounting is they they lent all this money out,
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  Speaker 1: but they didn't put it on their balance sheet um.
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  Speaker 1: And and that's where the the auditors found something of interest.
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  Speaker 1: And that's where Deutsche Bank already has had to restate
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  Speaker 1: the way that it accounts for these billions of loans um.
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  Speaker 1: It's not material, it's not anything that more than a
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  Speaker 1: trillion dollars an assets. You know, it's not going to
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  Speaker 1: tip the scales about their their financial health. But analysts
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  Speaker 1: they're saying that this is indicative of the complexity behind
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  Speaker 1: the real numbers of Germany's largest banks. Well, let's just
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  Speaker 1: just just take us little bit further to really break
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  Speaker 1: it down for us in terms of what they did
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  Speaker 1: and why will they say, oh, we were it's a
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  Speaker 1: complex transaction and we did exactly what we were supposed
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  Speaker 1: to do with it. That's why it's not there. Will
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  Speaker 1: this be a case will they'll eventually be charged with
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  Speaker 1: and have to admit to out and out fraud. What
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  Speaker 1: specifically is this going to turn on, because quite apart
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  Speaker 1: from you know, losing money, there's a whole question of
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  Speaker 1: credibility of behavior that it sounds like the crossed way
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  Speaker 1: over the line. Absolutely, this is a question of reputational risk.
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  Speaker 1: And this is what the auditors point out. There's nothing
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  Speaker 1: in here to indicate that anybody committed any crime um
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  Speaker 1: and there was a justification for the way that they
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  Speaker 1: accounted for these loans without actually making them look like
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  Speaker 1: there were loans on their balance sheet. So what happens
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  Speaker 1: the accountant the auditors uh came in and said, now
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  Speaker 1: if you can't, you can't do it this way. And
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  Speaker 1: it wasn't a mistake. The papers that we've that about
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  Speaker 1: the way that the Mounti Pasky deal was constructed showed
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  Speaker 1: that it was really important that they account for these
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  Speaker 1: off of the balance sheet because the more the more
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  Speaker 1: of these deals you can do without it impacting uh,
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  Speaker 1: you know, your own finances, the better. Is the way
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  Speaker 1: that that the endless who are trying to understand that
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  Speaker 1: they're saying, vernon do we also need to be concerned
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  Speaker 1: about derivatives because in the twenty fifteen annual report, Deutsche
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  Speaker 1: Banks said that it's exposure to derivatives was nearly forty
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  Speaker 1: seven trillion dollars. Now I understand, I know this is
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  Speaker 1: the notional value. So uh, it's not as if it's
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  Speaker 1: gonna oversee all of their counterparty transactions and clearings. But
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  Speaker 1: forty seven trillion dollars to put to put this in
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  Speaker 1: context as a political issue, because like we're in Europe
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  Speaker 1: and there's you know, put the politics are swarming all
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  Speaker 1: around this. Here in Rome, the Prime minists to Renzy
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  Speaker 1: when asked, you know, hey, aren't you going to clean
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  Speaker 1: up the Italian banks and Monty Pasky? Are you gonna
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  Speaker 1: have to bail them out? One of his biggest and
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  Speaker 1: strongest responses is to say, you know what, me, worry
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  Speaker 1: look at Deutsche Bank and the derivatives. They've got a
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  Speaker 1: look at the German banks. Um. So that's that's part
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  Speaker 1: of what you brought up. Is exactly what the Italian
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  Speaker 1: political response to this is. And it will be interesting
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  Speaker 1: to see as both Deutsche Bank and Monty Pasky coincidentally
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  Speaker 1: or not the two banks involved in in the deal
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  Speaker 1: that sparked all this, If either of them gets closer
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  Speaker 1: to the brink um if it becomes a political issue,
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  Speaker 1: if you know, will clean up ours if you clean
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  Speaker 1: up yours? You know. Also, this seems to be the
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  Speaker 1: potential perallel of UH to the two thousand, two thousand
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  Speaker 1: nine banking crisis in the United States. Ben Bernaki said
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  Speaker 1: he hated beating out those banks, right, but he had
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  Speaker 1: to to support the financial system. Now, if I'm Nzy,
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  Speaker 1: if I'm the Italian regulators and government, maybe I say, look,
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  Speaker 1: uh we can maybe I could. They could kick out managers,
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  Speaker 1: they can take that f d I C like kind
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  Speaker 1: of step. But they might say, no, we cannot let
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  Speaker 1: big institutions like this go down. Yeah. Absolutely, I mean
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  Speaker 1: that's the case with multi Passky, which you know, some
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  Speaker 1: of the you know, the investors have and and even
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  Speaker 1: political figures have pointed out as possible spark of some
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  Speaker 1: kind of systemic risk. Um. That's why there is such
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  Speaker 1: an urgent need on the part of the Italian government
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  Speaker 1: to make sure that it sells off its bad loans
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  Speaker 1: and that it gets UH new new investors. But what
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  Speaker 1: we're seeing with with the Stoutsche Bank transaction and the
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  Speaker 1: fact that there was there was accounting around the world
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  Speaker 1: that was that was constructed to not show exactly the
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  Speaker 1: way things really were. Is the question of this is
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  Speaker 1: a whole way that you do business have to be changed? Um,
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  Speaker 1: do we really know what the risks are and are
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  Speaker 1: there incentives or disincentive for for this kind of financial engineering?
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  Speaker 1: Burnon Silver Triffic Reporting, Thank you so very much for
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  Speaker 1: joining us. He is Bloomberg News Investigations reporter in Rome.
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  Speaker 1: His story today Deutsche Bank miss mark thirty seven deals
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  Speaker 1: like Pesky's. The audit says, very important story, very important
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  Speaker 1: development for European banks and the European financial system. I'm
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  Speaker 1: Kathleen Hayes along with P M. Fox. We're gonna be
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  Speaker 1: turning our attention to financial advisors. Is one of the
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  Speaker 1: top women advisors in the country. This is Bloomberg