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Comment by chollida1 | Hacker News Reader

Not surprisingly Matt Levine has already summarized the article in his succinct style.

https://www.bloomberg.com/view/articles/2016-08-22/mirror-tr...

If you are into Michael Lewis like books, there is a good book called the Quants that follows the path of 5 people in finance. One of them is Boaz Weinstein who became the youngest director ever at Deutsche and whose group made over billion one year as derivatives traders. The bank has been cleaning up the mess he left ever since.

It failed last years banking stress test in no small part to Deutsche's involvement in the derivatives market. The IMF just named them as the most important net contributor to systemic risks, followed by HSBC and Credit Suisse. So next time someone tells you that american banks are responsible for screwing up the world. Point them at the Germans and the Swiss :)

http://www.zerohedge.com/news/2016-06-29/imf-deutsche-bank-p...

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(Disclaimer: I am writing about 0.1% of Americans/Germans, not about 99.9%. And I assume you do to.)

> So next time someone tells you that american banks are responsible for screwing up the world. Point them at the Germans and the Swiss :)

Yes, that sounds plausable when we read the OP. And I am not here to defend Germans, but the largest shareholder of DB are Americans at BlackRock:

https://www.db.com/ir/en/shareholder-structure.htm

(6.05% held by BlackRock Inc., New York)

BlackRock is a provider of financial instruments (such as popular iShares ETFs) http://quicktake.morningstar.com/fundfamily/blackrock/0C0000... and is unlikely to call the shots at Deutsche beyond adhering to its voting guidelines during annual corporate elections.

As I understand it BlackRock signed up to the Stewardship Code - designed to ensure that asset managers take a role in the companies in which they hold significant interests.

Ignoring/avoiding their responsibilities is not ok

No ETF or fund holder votes their proxy. So it falls to the Blackrocks, Vanguards and Fidelitys of the world to hold self-serving corporate boards to account.

Matt Levine is always an immense pleasure to read.

Did not know about him before. Thanks!

So, how do they move the stock? Bags of stock certificates on international flights? It seems that shifting stock between business units might incur taxes or other regulatory concerns.

As far as I understand it it's a little like transferring electronic funds between accounts. The brokerage or exchange is the actual owner of the shares, but moves them electronicly between various accounts. Which leads to some weird voting rules.

Equities and other securities are usually held in street name[1], not the current owner's name, and they are not physically moved around, but rather consolidated at clearinghouses.

[1] http://www.investopedia.com/ask/answers/185.asp

> So, how do they move the stock?

In all likelihood, they never do. Russia Account buys $10MM of Stock in rubles; England Account sells $10MM of Stock in pounds sterling. Presumably England Account sold short, meaning it pays interest on its borrowed stock. Other than that, there is no carrying cost to maintaining the arrangement. Worst case: you deal with it if you're caught in a short squeeze.

If these securities were bought on different exchanges, e.g. Russia Account bought the Russia-listed stock and England account bought the UK-listed version, they may never be directly reconcilable. One would have to negotiate "special delivery" off exchange with willing counterparties [1].

Otherwise, one could demand stock certificates in Russia, mail them to the UK, and deposit them in England Account to close out the short position. That seems like a lot of trouble to avoid paying short interest. Worst case: after withdrawing funds from England Account let it default on its short obligation if the price goes up, thus leaving Deutsche Bank to sort out the mess of reconciling England Account's loss with Russia Account's offsetting (hopefully) gain.

[1] Actually, doing this on exchange seems sloppy. Sure, you get a bit more liquidity. But that doesn't seem like something you'd be worried about when putting in place a structure you expect to leave be into perpetuity. Doing this in the private, i.e. un-registered securities, markets would leave less of a paper trail and make moving the securities easier.

> Actually, doing this on exchange seems sloppy.

The article does mention how a bunch of these transactions were OTC, earning pennies here and there for Deutsche.

Do they ever close out their short positions? It seems like they'd quickly wind up borrowing too much for any brokerage to help them take on more...

> So next time someone tells you that american banks are responsible for screwing up the world.

I think you know this, but Boaz Weinstein is an American who worked for Deutsche Bank, in America.

The author of "Quants" also wrote "Dark Pools" for those who might be interested.

Did deutsche bank bundled those subprime loans? Why are you faulting those banks?

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