Tavakoli Structured Finance LLC

The Financial Report

By Janet Tavakoli

Red Flags at Deutsche Bank (Update)

Update June 7, 2015: Jack Ewing, “Co-Chief Executives of Deutsche Bank Resign,” The New York Times.

“Deutsche Bank has critical operational issues and management issues,” said Janet Tavakoli, president of Tavakoli Structured Finance Inc., a consulting firm in Chicago. “One cannot effectively manage risk — or measure the current situation — when internal paperwork and records are not in order.”

Posted June 4, 2015

DecisionsShareholders are not happy with Deutsche Bank because earnings targets have not been met. The bank cannot move capital around due to regulatory problems, and that impairs the bank’s ability to dole out dividends, even if it shouldn’t. If you want to know what has regulators so concerned, many clues are embedded in Charles Levinson’s widely-ignored March 15, 2015, exclusive Reuters article  about tension between risk expert Bill Broeksmit and Deutsche Bank managers in the month before Broeksmit committed suicide.

Reuters reported that based on its review of internal emails, Bill Broeksmit alleged various loan loss forecasts were wildly understated. Some were, in his opinion, “microscopic.” He alleged key historical data was ignored. Broeksmit pushed back when as an independent director, he was asked to present management’s point of view to Deutsche Banks’ board. He resisted and wrote: “Who is recommending that I do this?” He thought the loss assumptions were too low and stress tests should be done again. He did not give the presentation; someone else did.

Broeksmit thought Deutsche Bank was exposed to criticism that its models were “too generous.”

Very serious consideration should be given to a thorough independent audit and new independent stress tests for Deutsche Bank.

See also: Janet Tavakoli, “Versteckte Bankrisiken und das nächste Rettungspaket,” Huffington Post Deutschland, December 12, 2014

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