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Saturday, 03 September 2016 16:36

Is Deutsche Bank Prepping for Fraud Charges Against It's Gold Derivative Products? Featured

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We have forensically picked apart Deutsche Bank in a way that no other entity ever has, likely including Deutsche Bank itself. While we may not know all of its secrets, we likely now know more than almost everybody else. We will publish our findings to Veritaseum Knowledge clients early this week, but in the meantime we will put little teasers out to the public for the sake of conversation. "Why?", you may ask. Well, everybody already knows that Deutsche Bank is a basket case, but we are showing our clients that the real short opportunities and true systemic risks lie within DB's counterparties, whom have identified and are in the process of putting share price targets on. The first forensic report on the most proximal counterparty with an elevated share price is done, and the first counterparty share price target will be published to European Bank Contagion Assessment, Forensic Analysis & Valuation subscribers within 48 hours. There are several more to follow. In the meantime and in between time, let's discuss Deutsche in detail that you will find nowhere else on the web or on Wall Street.

Last week we illustrated what appears to be a slam dunk finding of Deutsche Bank fraud under the UK Fraud Act of 2006, reference "Veritaseum Knowledge Exposes Frightening Counterparty Risk At Deutsche Bank for "Gold Investors"". In said piece, we tracked down DB's alleged failure to deliver physical gold upon demand redemption of one of it's subsidiary's gold derivative instruments and superimposed it against DB's counterparty risk and blatant contradictions between it's marketing material (ie. website) and it's prospectus (which itself actually had material and confusing contradictions) - as excerpted:

  • ..."an investor is, from an economic point of view, invested in gold", but
    • "No correlation with the gold price", and 
    • and "The value of the Notes is a function of demand and supply regarding the Notes as such and not of the demand for and supply of gold", but
    • "For potential purchasers of the Notes the pricing may, apart from the gold price, also be determined by other factors (e.g., the creditworthiness of the Issuer, the evaluation of these risk factors or the liquidity of the Notes)." - keeping in mind that Deutsche Bank believes 
    • There's no movement in counterparty risks yearly, or cumulatively, due to collateralization (where said collateral is wide open to market forces and valuations) for instruments.
    • No control of genuineness or fineness of the physical Gold Neither the Issuer nor the Depositary Agent or any other agent of the Issuer will control the genuineness or fineness of the physical Gold held in custody on behalf of the Issuer by Clearstream Banking AG in its capacity as Depositary Agent.

Oh, there's more, for those of you who believed that line "an investor is, from an economic point of view, invested in gold". 

The purchasers of the Notes will only acquire the rights securitised by the Notes. The purchasers of the Notes will not acquire any title to, or security interests or beneficial ownership in, the physical Gold held in custody on behalf of the Issuer. An investment in the Notes does not constitute a purchase or other acquisition of Gold.

This comment excerpts the requirements of the UK Fraud Act of 2006, since the DB derivative issue was sold to UK investors. It clearly shows the material uncovered in our article can garner the label of fraud in the UK. There''s actually much more in the article if you click the aforereferenced link, but I believe many can get the message. So, where does this leave us? Well, it appears as if DB is prepping for a rash of fraud and litigation exposure. Looking at numbers buried deep within DB's more than 650 pages of financial reporting (just for the 2015 annual report), we find their disclosure of operational risk.

DB Operational risk 2015

'Profit and loss based operational losses increased by € 3.3 billion or 133 % compared to year-end 2014. The increase was predominantly driven by the event types “Clients, Products and Business Practices” and “Internal Fraud”, due to settlements reached and increased litigation reserves for unsettled cases. The increase in the event type “External Fraud” is caused by a provision for equity trading fraud.

As we drill down even further, we see even more damning information. From a frequency perspective. external fraud is the king. It happened more than any other type of operational loss, and for the year 2015, has almost matched the frequency of the previous 5 years combined. What is going on in a bank to cause such a dramatic uptick in fraud? 

To make matters worse, the clients, products and business practices losses (basically fraud, from our perspective) has almost doubled that of the previous 5 years - and that's just for the fiscal year 2015! The saga continues, and gets even darker. When looking at the distribution of actual losses, "Clients, Products & Business Practices" not only takes the lions share of the pie, but 2015 alone has matched the previous 5 years combined. What the hell is going on in this bank? More importantly, why is it getting so much worse?

DB Operational losses by event type 2015

 

This is how DB framed it:

"The above left pie chart “Frequency of Operational Losses” summarizes operational risk events which occurred in 2015 compared to the five-year period 2010-2014 in brackets based on the period in which a loss was first recognized for that event. For example, for a loss event that was first recognized in 2002 with an additional profit/loss event recognized in 2015, the frequency chart would not include the loss event, but the loss distribution chart would include the profit/loss recognized in the respective period. Frequencies are driven by the event type “External Fraud” with a frequency of 44 % of all observed loss events. The event types “Clients, Product and Business Practices” contribute 42 % of the events and “Execution, Delivery and Process Management” contribute 11 %. Others are stable at 2 %. The event type “Internal Fraud” has a low frequency, resulting in less than 1 % of the loss events in the period 2015. This is unchanged compared to 2010-2014. The above right pie chart “Distribution of Operational Losses” summarizes operational risk loss postings recognized in the profit/loss in 2015 compared to the five-year period 2010-2014. The event type “Clients, Product and Business Practices” dominates the operational loss distribution with a share of 63 % and is determined by outflows related to litigation, investigations and enforcement actions. “Internal Fraud” has the second highest share (23 %) which is related to regulatory events we have experienced in recent years. Finally, the event types “External Fraud” (8 %) and “Execution, Delivery and Process Management” (5 %) can be considered minor, compared to other event types."

What DB failed to point out was that although "Internal Fraud" consisted of just 1% of the occurrences, it represented 23% of the loss amount of 2015, which is ~10% more than the previous 5 years combined, which was in itself still significantly more expensive than all of the other categories. 

This bank is a  mess. As for the source of all of these numbers, let's display it in words so all can get a different perspective...

Legal Actions by the Counterparties since 2014 (that's right, this is just since 2014):

There are some incidents where Deutsche bank is defendant in various lawsuits by purchasers and counterparties who were involved in transactions relating to RMBS and their affiliates. Some of the counterparties who faced damages are:

  • Azora Bank Ltd :

Damage of US$61 million attributable to Deutsche bank

  • The Federal Deposit Insurance Corporation:

They filed a lawsuit against Deutsche bank as receiver of

  • Colonial bank whose damage amount is around US$189 million

  • Franklin Bank S.S.B and Guaranty Bank; where the damage amount is almost US$901 million

  • Citizens National Bank and Strategic Capital Bank; aggregate loss is around US$66 million

  • The federal Home loan bank of San Francisco

  • Phoenix light SF Limited

  • Royal Park Investments

  • Residential Funding Company

  • Mass Mutual Life insurance company

  • The federal Home loan bank of Boston and The federal Home loan bank of Des Moines

  • RBMS Recovery Holdings 4, LLC

  • VP structured Products, LLC

  • Texas County & District Retirement system for 4 RMBS bonds underwritten by Deutsche Bank

  • Charles Schwab Corporation for purchasing countrywide- issued RMBS certificate

  • Trustee civil Litigation investors

  • Royal park Investments

  • The national credit Union Administration Board (NCUA) for investing in 121 RMBS trusts

  • Western and Southern life Insurance company and five related entities( collectively known as Western and Southern) for 18 RMBS trusts

  • Commerzbank AG for investments in 50 RMBS trusts

  • IKB (IKB International, S.A in Liquidation and IKB Deutsche Industriebank A.G.) for their collective investments in 37 RMBS trusts

To get the heavy dirt on many of the leading EU area banks, US tech companies, and real estate concerns (not to mention the latest in blockchain technology), subscribe to Veritaseum Knowledge - in depth, extremely detailed knowledge (vs information) not available anywhere else in the world.

Read 5021 times Last modified on Wednesday, 07 September 2016 14:18
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