Sunday 27 May 2018

Deutsche Bank sent €28bn to the wrong account

Deutsche Bank inadvertently transferred €28bn to the wrong account. Photo: PA
Deutsche Bank inadvertently transferred €28bn to the wrong account. Photo: PA

William Canny

Deutsche Bank inadvertently transferred €28bn to the wrong account.

The so-called "fat finger" trade came amid a weeks-long leadership tussle that claimed the scalps of the chief executive and two of his top lieutenants.

While the blunder was quickly reversed and caused no financial harm, it's a stark reminder of the vulnerability of even the most sophisticated financial firms.

For Deutsche Bank, the mistake comes at a delicate time as the new CEO, Christian Sewing, seeks to convince investors the bank can now return to growth. His predecessor, John Cryan, had already tackled an improvement in controls that had failed the lender in the past.

"Fat-finger incidents are common within banks but automated controls should prevent their execution," said Michael Huenseler, a portfolio manager at Assenagon Asset Management, which owns Deutsche Bank stock. "The shocking amount in the case of Deutsche Bank points to deficiencies in the bank's IT functionalities, which lends new weight to Kim Hammonds's critical remarks and raises urgent questions about the potential costs of changing the systems."

COO and IT chief Hammonds will leave the bank in May "by mutual agreement", the board said earlier this week. A veteran of Boeing and Ford, Hammonds had ruffled feathers by calling the bank "the most dysfunctional company" she'd ever worked for at an internal meeting. She never disowned the comments after they leaked to the press.

The routine payment that went awry last month was one that Germany's biggest lender unintentionally sent to an exchange as part of its daily dealings in derivatives, a person familiar with the matter said. However, the incident didn't contribute to the dismissal of either Hammonds or Cryan, two people with knowledge of the matter said.

The errant transfer occurred about a week before Easter as Deutsche Bank was conducting a daily collateral adjustment, the person said. The sum, which far exceeded the amount it was due to post, landed in an account at Deutsche Boerse AG's Eurex clearing house, temporarily boosting the collateral held by the world's fourth-largest clearing house by more than half.

"This was an operational error in the movement of collateral between Deutsche Bank's principal accounts and Deutsche Bank's Eurex account," Charlie Olivier, a spokesman for the lender, wrote in an emailed statement. "The error was identified within a matter of minutes, and then rectified. We have rigorously reviewed the reasons why this error occurred and taken steps to prevent its recurrence."

It's another mis-step for Deutsche Bank after its third straight annual loss and at a time when it faces increased scrutiny from regulators. Cryan, who was CEO for three years, said earlier this year that the bank was approaching the end of "phase one" of his restructuring.


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