Deutsche Bank, Nomura Begin Trial in Monte Paschi Collusion Case

  • Two firms accused of conspiring to mask Monte Paschi’s losses
  • Trial comes as Italian lender struggles to avoid new bailout


Deutsche Bank and Nomura are accused of using complex derivative trades to hide losses at the Italian lender, leading to a misrepresentation of its finances between 2008 and 2012. After the deals came to light in a 2013 Bloomberg News report, Monte Paschi restated its accounts and tapped shareholders twice to replenish capital.

Monte Paschi as a company isn’t among the defendants because it secured court approval for a plea bargain to resolve the investigation in October. The settlement requires the bank to forfeit 10 million euros ($10.5 million) and pay a fine of 600,000 euros.

The trial, expected to last months, comes as the world’s oldest bank pushes ahead with a plan to raise 5 billion euros of fresh funds to cover losses on bad loans that mounted during the country’s recession. If that fails, Italy’s government is preparing another rescue package for the lender, which has already received billions of euros in bailout funds.

Deutsche Bank Mismarked 37 Deals Like Paschi’s, Audit Says

Bafin-commissoned review says Fed subpoena sparked scrutiny
German lender changed accounting for transactions in 2013
Deutsche Bank AG, indicted for colluding with Banca Monte dei Paschi di Siena SpA to conceal the Italian lender’s losses, mismarked the 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 10.5 billion euros ($11.8 billion) 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.

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Jim Rickards: Don’t Forget About Deutsche Bank

The banking crisis in Italy has gotten all the attention lately, but one of the biggest banks in the world is still a serious potential problem.

The bank in question is Deutsche Bank. It’s the largest bank in Germany, by far, and one of the twelve largest in the world. It is difficult to overstate the importance of Deutsche Bank not only to the global economy, but also in terms of its vast web of off-balance-sheet derivatives, guarantees, trade finance, and other financial obligations on five continents.

It’s well known that Deutsche Bank is the “sick man” of European banking.

Deutsche Bank is certainly in the “too big to fail” category. Therefore it won’t be allowed to fail. Germany will intervene as needed to prop up the bank.

The problems at Deutsche Bank are well-known. They have suffered through bad debt write-offs and mark-to-market trading losses just like many of their big bank peers. But, the problems go deeper. Deutsche Bank’s capital has barely been adequate under generous ECB “stress tests,” and is completely inadequate under real world scenarios involving a global liquidity crisis of the kind we saw in 2008.

This summer, the U.S. Department of Justice announced that it was seeking $14 billion to settle charges that Deutsche Bank engaged in misleading sales practices with regard to residential mortgage backed securities between 2005 and 2007. Of course, that was just a claim. But, even if Deutsche Bank settles the case for a fraction of that amount, say $5 billion, it will significantly impair an already weak capital base.

Not surprisingly, Deutsche Bank’s stock suffered enormously as a result. From a pre-Lehman interim high of €104 per share, it fell to €34 per share by early 2015. That’s a 68% decline, mostly driven by the global financial crisis of 2007-08 and the European sovereign debt crisis of 2011-2015.

Just when investors thought things could not get worse, they did. From the €34 per share level in 2015, Deutsche Bank stock fell again to €10.25 per share in September. That was a massive decline off the lower 2015 base. Its stock has since bounced back.

But it’s still afflicted with bad debts, high expenses and inadequate capital. Management is trying to remedy the situation, but it’s clear that massive amounts of added capital will be needed.

Many potential investors have not wanted to buy in until they are certain that all of the bad debts have been recognized. Yet the process of writing off debts impairs capital further and makes a run on the bank more likely.





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