Deutsche Bank: Germany's Financial Colossus Stumbles
theguardian.com
theguardian.com
Now of course such P&L could be positive too, but inevitably, when the wolves of the markets start hunting, they'll seek out the positions that are "wrong way". Let alone if DBK starts to try to unwind some of these derivatives. I bet it wouldn't be able to unwind even 2% (1.3 trillion!) of the books without blowing itself up.
I think this bank is Exhibit A to the catastrophic excesses of the past 20 years.
It's a terrible mistake there has never been a separation of investment banking from commercial banking in Germany (i realise the line is hard to draw), because the German taxpayer is essentially guaranteeing this shoddily run bank.
Unfortunately German politicians seem to be quite oblivious to this problem. Joe Ackermann (then CEO of DB) was giving Merkel advice on the financial crisis of 2008, so there seems to be some asymmetry of information there...
Only partially related, I remember one of the German landsbanke (can't remember its name) buying full one-page splashy ads in magazines like The Economist, back in 2007. Only one year later they went catastrophically under because they had bought in into the subprime lending and its derivatives' mania. I remember one of the directors saying something like "we didn't know what exactly we were buying, those products were too complicated for us, we trusted the people who had sold them to us". It's fools all the way down.
It's worth noting that on derivatives, your loss if your counterparty goes bust is not the notional. It's a fraction of the notional. But even a small fraction of 65 trillion is a very, very large number.
In fact the number in DBK's case is so large that it might endanger the credibility of the authorities themselves.
This is the cause.
It is not mere speculation, like it is with commodities trading, it is "trading" of imaginary things with other people's money in a way that it will be other people's problems. Now there is no way to convert these imaginary things back to other people's money, so it became German people's problem.
They become a problem in banks that have a lot of them ("weapons of financial mass destruction") because of their opacity on the balance sheet (DB has one line in their balance sheet for derivatives, ~ 500 billion Euros) and because banks offload their long-tail risks to their depositors and ultimately the taxpayer. The new bail-in rules mean that depositors in banks are essentially guaranteeing the bank's balance sheet. Think about that the next time you look at your bank account.
Likewise, regulators in Europe dish out fines a-plenty. The FSA certainly did over the LIBOR scandal recently.
European banks could mitigate risk in the US by trading legally or by ceasing trading there at all. If they really think they can't trade legally then their business is not welcome.
The problem is that banks absolutely cannot afford to risk going to court, since losing a case could mean losing their ability to deal in USD, which would be the end for them. That means that the banks must settle any case brought by the prosecutors. The prosecutors in New York have used this leverage to squeeze billions in settlements from the European banks. The "justice"system has basically turned into what amounts to a protection racket.
Your perspective is too generalized, thus ultimately false. The case depends on the size of the bank.
In the case of a famous British bank, the prosecution literally stated that they could not prosecute the bank because it would have been too much of a big impact on the economy.
They got fined with the equivalent of a few weeks of profit, and who knows how much they ever profited from such illegal activities.
Doesn't sound a protection racket to me.
[1] https://en.wikipedia.org/wiki/China_UnionPay
[2] https://www.rt.com/business/239189-china-payment-system-read...
Your comment is farcical; it's been widely written about how lightly banks and other financial institutions get off following egregious violations of law.
This is a fraud nearly as bad as Kerviel, and happening at about the same time ($8bn unauthorised position), and where Goldman quietly fired the trader and did not report the fraud, which enabled the trader to work at another bank. And for that Goldman was given a mega-fine of..... $1.5m.
It helps to have friends.
Pocket money they pay out of their bailout spoils.
Multinationals just don't work like that.
If a bank is really big, like HSBC, it can't/won't be penally prosecuted in real world, so the rational choice [1] is actually to keep committing crimes, and settle the ones where they're caught.
On the scale of such bank, even fines which would be astronomical from the perspective of a normal citizen, are peanuts (so to speak) for a large bank.
[1] = in a logical, not moral, sense.
Maybe US should not project their legislation on foreign subjects? They didn't vote for anyone who created that legislation anyway.
But the standard for banks is now a zero tolerance policy with multi-billions fines for any breach. It is a game they cannot win.
a) They were among the worst offenders
b) They tried to get rid of the lawsuits quickly.
> they cannot escape US regulation and legal exposure as
> long as they want to have the ability to trade US dollars
In the most basic trades, possession is settlement. Much of the third world has significant trade in USD, including countries that the US doesn't regard well. In Panama, the USD is a defacto national currency, a choice the crowd has arrived at due to convenience.
You can get an armoured van and deliver packs of physical notes.
You can use contracts to get more complicated arrangements, including where you have USD on paper but backed by an alternative currency. You can do balance sheet adjustments by contract. You can be a dutch firm ordering agricultural goods from Kenya, and do your leg of the transaction by delivering USD. The banks in the middle might exchange physical USD to make it happen, without any of them being regulated by the US at the time. But - probably - they'll just organise the deal in terms of USD using holdings of other currencies or commodities or contract-agreed offsets that are convenient to them.
Highly unusual for an investment bank, they acquired Postbank to open up a retail channel, but that is < 5% of the size of Deutsche Bank.
The problem with DB is that Germany cannot let it fail because it underwrites its export economy, plus it would be a national humiliation. However bailing it out after imposing austerity on the PIGS, especially Greece would pour fuel on the fire of anti-German sentiment in the EU.
Pros:
* English! There is always someone on the phone who can speak English, and they can even send their letters in English. (for Germany, this is very rare)
* More "high touch" - there is a person assigned to your account
* I can't remember if this was the case in UK, but I noticed that transfers to some Western EU countries have no fees and happen almost instantly. Yay!
Cons:
* Buggy app and web interface, sometimes the login fails or hangs randomly (revenue was €31.95 billion in 2014, it's understandable that they can't afford spending too much on this)
* The way to authorise online transactions is with a piece of paper with 100 codes printed on it (TAN list). This was a shock, but it's apparently common here.
* Taking advantage of new customers. They offered me a loan which I later realised had a ridiculous interest rate. (I guess this isn't exclusive to DB, but silly me expected that a good, more prestigious bank would value longer term customer relationships)
* Stupid useless cards. The default account (€5/month) comes with a card (EC Karte) that can only be used at German ATMs and in most German stores. Good luck trying to do anything online with it. For that you need a credit card (extra €5/month), the very idea of something like VISA Debit seems completely alien to Germans.
> Buggy app and web interface, sometimes the login fails or hangs randomly
This never happened to me, maybe I'm just lucky. There used to be a problem with the web interface when you entered the banking system's URL without "https://" but that's not really the same.
> The way to authorise online transactions is with a piece of paper with 100 codes printed on it (TAN list)
I think the TAN list is just there to get you started (and for some technophobic Germans). I used it to set up SMS TANs immediately, and I think there is still an option for a dedicated TAN generator device (at least there used to be). Don't use the TAN list!
> Stupid useless cards. The default account (€5/month) comes with a card (EC Karte) that can only be used at German ATMs and in most German stores.
An EC Card is the thing you need to go shopping in Germany. It's entirely appropriate for this country, and contrary to what you claim it works just fine internationally (at least mine does). While it's true that some banks offer a separate VISA credit card, it shouldn't be a problem for you to get one elsewhere. As for VISA debit cards, I'm not sure if those even exist in Germany.
What's behind this recommendation?
Well whoever can hack your password, mobile TAN or TAN reader device will likely still not hack into your paper TAN list. There's something to be said for a "physical layer".
They are frequently hacked by phishing (intercepting the bank site, changing out the reciever and asking for the TAN code nevertheless). chipTAN for example works by optically transmitting the transaction details to a small handheld device with your banking card inserted, and the handheld device shows you the IBAN and amount... foolproof.
http://business.chip.de/bii/1/6/5/0/1/8/6/0/chipTAN_sparkass... for an example pic of such a handheld device.
http://www.handelsblatt.com/politik/konjunktur/nachrichten/z...
This is what I've had with all European banks. It's simple, secure and always in your wallet. What's the method you are accustomed to in the UK?
Some banks do an extra validation step in case of unexpected transfers (such as a large sum, or a new foreign destination account) by sending the required TAN index by SMS. You'll then look up the matching TAN from your list an put that in.
This is the law for all Euro-denominated transfers in the EU (even in the UK -- but unless your account is Euro-denominated they can still make money off the forex).
I thought their HQ is in London.
As far as i know the Investment Banking branch mainly operates from out of London.
To compare pension fund assets:
US: $46k/capita
UK: $42k/capita
Netherlands: $76k/capita
Germany: $2.9k/capita
That's only the statutory part though. You are advised to contribute to an occupational and/or private arrangement alongside the statutory scheme. They operate differently.
The underlying problem Germany has is the population dynamics. The population is an ageing one. Lots of people are living longer and not enough children are being born to cover the gap. It might be politically unpopular, but importing refugees and successfully converting them to integrated German tax payers, might well be a long term goal of the state in order to stave off the pensions crisis.
Actually the fact that wages stopped rising along with the economy as a whole (e.g. less of the generated profits get payed out as wages) seems to play an important role, too.
The retirees represent a cost in absolute numbers (e.g. they are entitled to pension benefits of a certain size). The workforce is collectivly paying out the retirees with a share of their income.
That system works fine even with a declining retiree/workforce ratio (which actually shrinks since at least the 1960s) as long as real wages continue to grow along with GDP and productivity.
Which they don't, and that's a problem.
[0] Figures released by a research institute of the federal government. http://doku.iab.de/aktuell/2015/aktueller_bericht_1514.pdf
I suppose a good outcome would see the unemployment rate of refugees converge against the unemployment rate of the non-migrant population (vaguely: 7.9%[0]), or more specifically the unemployment rate of those parts of the non-migrant population with similar levels of qualification (vaguely: 13.3%). Because as these levels converge, it makes less and less sense to think of it as a migration issue and more of a more general labor market issue.
[0] Numbers strictly to get a feel for the broad range, the first is the overall unemployment rate in 2011, the second the unemployment rate of people with basic education; unemployment numbers are a rats nest in the best of cases. http://www.bpb.de/nachschlagen/zahlen-und-fakten/soziale-sit...
Those "pension fund assets" can therefore only be private pension contracts on top of it.
You can be sure that if the shit really hits the fan, Deutsche will be bailed out, no matter the cost. I would bet anything on this happening.
The bank always wins :-(
Schleswig-Holstein just decided to drop any plans for the black zero, and doubled the funding for new police recruits. Additionally, we decided to also build more schools. And fix the infrastructure.
[1] https://en.wikipedia.org/wiki/Private_sector_involvement
In a way it is already too late.
The scandal is that DB has been allowed to grow this big.
Tell him to just stfu and get back to work.
BTW nobody spoke on the issues of other EU members, like e.g. Greece's northern neighbours Bulgaria and Romania where people live with less than the Greeks during the worst times of their crisis. And all this just because someone somewhere gave carte blanche to the Soviet Union to install pro-communist forces in countries of strategic interest to them where there was almost non-existant communist movement compared to Greece where the UK allegedly intervened so that this won't happen. Just for perspective: people lived comparably good/bad in all three countries before WW2.
As a German, you should know how economically devastated was the DDR after 1989. And bear in mind that it was the best player in the Eastern league of non-representativeness and corruption. (comparisons with the West are another topic altogether)
Such a banking fiasco would never happen in a country filled with precise, punctual, hard-working and responsible light beings such as Germany.
I never saw the EU bailouts as handouts from the virtuous to the losers, nor do I see it as an altruistic gift to our friends in need. I see it more as an insurance. Do people whose house isn't on fire want to punish those whose house burned down? No. We all know it could happen to us.
I don't think Germany will need a bailout, but if some day they do, we should do it.
When the banks were Greek, Spanish, Portuguese or Irish, the German government didn't give a fuck about the people.
Don't tell us about regular people, we have suffered it since years ago and Merkel just said STFU and fuck off
And don't talking about the moral lessons they gave us. But ohh, the German banks are exactly the same as the other ones
Why? Because German and French banks lent huge sums to periphery countries - which is why the bailouts were forced on them.
What you are seeing now is the chickens coming home to roost.
http://www.davidmcwilliams.ie/2012/05/10/financial-contagion...
Portuguese, Spaniards, Greeks... were sold in the slave market for the dirty tricks of banks like this. We'll never know how many Europeans will not born or how many suicides or premature deaths are directly caused by the big scam. So please, politicians, don't illustrate us about suffering when the people don't want to vote you anymore. We'll survive with or without you.
Since you appear to be from one of those countries, you should see how to get more responsible for your choices and look for better representatives to elect. I don't see what's your point about another sovereign country. Everyone has their own problems, let's just focus on ours.
BTW you would be surprised how pissed off were Germans at that time, because every sane person knows the old saying: "Bankers here, bankers there, all the same everywhere." So we (at least not the bigots among us) should be allowed to speak of regular people bearing the cost of such changes, shall they happen, just as we (and YOU) did it when the same thing happened in Greece, Spain, Portugal and Ireland.
>? Since you appear to be from one of those countries, you should see how to get more responsible for your choices and look for better representatives to elect. I don't see what's your point about another sovereign country. Everyone has their own problems, let's just focus on ours.
This must be a fucking joke looking what happened to Greece. When the people elected different government, the German one did what they did.
So, για όνομα του Θεού, don't fall into the trap the media tries to put us into (for whatever reasons, I don't care). This is not about Germans vs Greeks, it's about the consistently failing banking system around the world. Only when we realise the true nature of the problems at hand, can we deal with them.
Be well and prosperous!
Cyprus and Greece have created a precedence for creditor bail-ins. Public finances are stretched due to refugee inflows and opposition to Merkel is growing even internally in her massive coalition government.
This setup may lead to something not predicted (ie. DB not getting the guarantees it needs or even a creditor bail-in) or more predictively the rise of left or right-wing non-established / populist politics.
Pfft. Get real.
Germany has survived an influx of 10 million refugees in the immediate aftermath of WW2 and created the Wirtschaftswunder in passing while rebuilding the whole country.
Germany has survived the reunification and integration of 16 million communists (going by the right-wing, the only worse subhumans than foreigners) with a dead industry, and became the economic powerhouse of and dominating power in Europe while eating up the reunification's 2 trillion Euro cost.
Half a million refugees are a rounding error in our budgets.
As others have pointed out
https://www.cia.gov/library/publications/the-world-factbook/...
https://en.wikipedia.org/wiki/List_of_government_budgets_by_...
The only two countries in the world which have a higher surplus than Germany are Norway and Qatar
Secondly interest rates are low due to low inflation masquerading a higher real interest.
What I meant was: The influx of refugees will strech the public finances.
How much and whether "welcoming refugees eventually will turn out to be a good investment" is deeply controversial and so politicized that it is very hard to have a reasonable conversation about it.
However I think it is fair to say that taking in refugees costs money in the short term.
I am from Denmark and in many ways we are similar to Germany.
But we are different in that we have taken in a relatively small number of refugees (around 25.000 pa. excl. family reunions, population 6 mio.) and yet the subject number 1 in Danish politics is how to handle the strech on public finances it creates.
This may be due to two things:
1. Denmark is more generous to refugees and/or integrates them more poorly.
2. Denmark has different politics where it is okay to talk refugees as expenses. (Whether they are or not is another question - my point is that our politicians talk about it in this way.)
What I wrote would absolutely not be controversial to say in Denmark but I can see from the downvotes that it is different elsewhere.
Which I think underlines my point that this subject really is too touchy to have a good conversation about.
How much of that stretch is real, and how much is fear-mongering to influence upcoming elections? Do you have hard numbers?
What to do with either of them is a separate question, if the estimated cost (or its relation to the general budget) is so high that it warrants barring the entry to asylum seekers. This is obviously a difficult thing to judge, since it trades off economic policy against what is typically framed in terms of basic human rights.
Thanks for staying cool. :) I do think it's possible to have a reasonable conversation about this, and you are right that it is often strange how different the conversation is even just across the border.