Deutsche Bank And The Bailout Which Never Happened

By Tom
Updated on

Deutsche Bank the latest on BaFin and the bailout which never happened. Financial Times has:


They allege that Deutsche misvalued a huge $130bn portfolio of complex derivatives, known as “leveraged super senior” trades, allowing the bank to avoid losses of $4bn-$12bn and helping it avoid a government bailout.


The “leverage” in the super senior comes from the fact that the counterparties – to make the deal more attractive to them – did not have to post the full amount of collateral. In a typical $1bn they might only post $100m.

Because so many corporate defaults would have to occur before the collateral was wiped out, this was widely seen as safe.

Deutsche said its treatment was appropriate.

Well that might have been so according to Deutsche Bank AG (ETR:DBK) (FRA:DBK) (NYSE:DB)’s standards; but some might beg to differ – apart apparently from the Securities and Exchange Commission:

More from The Financial Times:


If the assets – worth a notional $130bn – had been properly accounted for, Deutsche could have required a government bailout, the allegations say.


News that BaFin was aware of the valuations could lead to tensions with the US regulator, which has been looking at the allegations for more than two years. Experts also said the German regulator’s stance might complicate the SEC’s efforts to bring a case, because the bank would be able to argue it did
not intend to break any rules.

Deutsche Bank AG (ETR:DBK) (FRA:DBK) (NYSE:DB) reiterated a statement that the allegations were “wholly unfounded”. The bank’s supervisory board and BaFin both declined to comment.


The news is not so much that a bank has lied or misrepresented or a bank inspection has been hoodwinked. That will of course – whether true or not – have repercussions one way or the other.

No it is that Deutsche Bank apparently tries to scrape off a government control by misleading BaFin or rather the Government.

Typically that sort of information comes from the US Securities and Exchange Commission  (SEC) which points to a rather close transatlantic cooperation. Deutsche Bank is clearly engaged in legal arbitrage (i.e. using different regulators and regulations in different countries – somewhat like internal invoicing). Interesting is also that it is in total harmony with what has transpired in the LIBOR scandal that up to now has led to CEO resignations as if cut down by a scythe.

We are now moving down the ladder to the next level: Those that actually made the annual reports and took advice from the accountants. These new managements are not likely to foot their predecessors little tricks that they haven’t told anybody about. One wonders what have made these employees come forward. To me it sounds like the result of a typical police ploy: “If I’m to forget that – then you’ve got to tell me something MUCH more interesting.”

Employees are now beginning to spill their guts, not only because they are disgruntled with the management, but because they are genuinely scared of doing time themselves – now their senior management cover is taken away: They have nothing on their new masters.

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