Business Irish

Sunday 16 December 2018

Deutsche Bank helped conceal client losses

Headquarters of the Banca Monte dei Paschi di Siena
Headquarters of the Banca Monte dei Paschi di Siena

Vernon Silver, Elisa Martinuzzi and Donal Griffin

Under pressure banking giant Deutsche Bank helped conceal Italian lender Banca Monte dei Paschi di Siena's losses by mismarking a transaction and dozens of others on its own books, according to an audit commissioned by Germany's regulator.

Executives at Deutsche Bank arranged 103 similar deals with a total value of €10.5bn for 30 clients, according to the audit, a copy of which was seen by Bloomberg.

The Frankfurt-based lender, Germany's largest, adjusted the accounting of 37 of those trades in 2013, in addition to Monte Paschi's, changing them from loans that had been kept off the books to derivatives, the audit said.

The widespread use of a transaction that's now the subject of a criminal case highlights the lender's appetite for complexity at a time when the bank was expanding its fixed-income empire. While Deutsche Bank has since cut risky assets and eliminated thousands of jobs to bolster capital, mounting legal costs have become a source of increasing concern to investors, driving shares to a record low.

"Very complex deals prevent the market and regulators from properly understanding the state of a bank's balance sheet, inhibiting proper regulatory monitoring and distorting market discipline," said Emilios Avgouleas, a law professor at the University of Edinburgh.

The audit found that while Monte Paschi was the only client that used a transaction to "window dress" its books, Deutsche Bank didn't correctly account for similar deals with banks from Italy to Indonesia made between 2008 and 2010.

The report also said senior executives didn't properly authorise the Monte Paschi trade, dubbed Santorini, or adequately review the transaction after receiving a subpoena from the US Federal Reserve in 2012.

Monte Paschi restated accounts in 2013 after the transactions came to light and further amended results in 2015 at the request of Italy's regulator.

Deutsche Bank's restatement of its side of the deals didn't affect the firm's profits. (Bloomberg)

Irish Independent

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