Comments on: The Deutsche allegations

By: Oxy2

Oxy2 — Thu, 06 Dec 2012 22:02:33 +0000

What DB did deserves no sympathy and is outrageous. The author clearly is very superficial and does not understand the difference between retail bank and derivative speculating Investment Bank. When retail bank issues a mortgage at 5% that it thinks it can finance at 4% DOES NOT recognise ALL THE PROFIT EXPECTED TO ACCRUE FROM THIS OVER THE YEARS on the very first day of the mortgage. It does it over the life of the mortgage. Investment Bank WILL recognise it all on DAY ONE – it is called Fair Value Accounting. BUT WHAT IT MEANS IF MARKET CONDITIONS CHANGE AND NOW THE MORTGAGE IS PERCEIVED LESS VALUABLE BY THE MARKET IT MUST, ABSOLUTELY MUST, recognise the losses. If allegations are true (and I am quite sure they are) then DB will have recognised all potential profit during the good times and just sat quiet during bad. LEHMAN was honest – and hence failed. If it is proved that DB were at wrong and it enabled the to survive – they should be fined sufficient amount that will force them to go bust – otherwise it is just not fair!

By: csissoko

csissoko — Thu, 06 Dec 2012 17:58:54 +0000

Back in the day when banks ran their own liquidity crisis interventions via clearinghouses (i.e. U.S. 1900 or so), the clearinghouse — or banks acting as one — supported the offending insolvent party through the liquidity crisis and when it was over promptly shut that party down as a mismanaged danger to the system.

In short, to the degree that you are right, we’re still waiting for our system to deal with the “moral hazard” aspects of the recent interventions.

By: Greycap

Greycap — Thu, 06 Dec 2012 13:27:28 +0000

It is odd that in a piece this length you are willing to pass on the term “gap risk” in scare quotes but not to use the orthodox term CVA. As it happens, DB may be on firm legal ground here because the general view seems to be that CVA adjustments to marks were not required by banking regulations prior to the crisis. You can infer this from the emphasis that Basel III places on CVA – why would they do this if that were the status quo ante? And if it is true that CVA capital charges are a harbinger of the banking apocalypse, shouldn’t you have had a Basel III tie-in? Saying something about how you think the new rules will have disastrous unintended consequences?

You might also have noted: live by the CVA, die by the DVA. If the adjustment to DB’s bought protection was big enough to endanger the bank, the sold protection would have to be marked down too. Everyone gets worked up about this, so that is a good story angle as well.

You don’t seem to be on the top of your game today, Felix. Get well soon!

By: KetchupL

KetchupL — Thu, 06 Dec 2012 11:14:16 +0000

If there is a problem with MTM or accounting rules under IFRS or GAAP, then suggest changing the rules, rather than simply giving DB a “pass”. Having 3 independent people come forward tells you there is definitely something fishy going on here.

And, have you not just implied that potentially misrepresenting financial accounts is ok?

By: MrRFox

MrRFox — Thu, 06 Dec 2012 09:56:50 +0000

“But given how unique and terrible this crisis was, I’m inclined to give Deutsche a pass.” (FS)

And no one else? Why just DB – got a ‘thing’ for ….?

‘All or none’ is kind of the theoretical basis of our legal system, hard as that is to believe some times – you’re not in Europe anymore, Toto. Wouldn’t it be better all around to adopt a view that ‘mark-to-market’ presumes an orderly market from which to derive ‘marks’? In disorderly markets, regulators should specify a model to be used in lieu of MTM – maybe ‘Lehman Weekend’ might not have happened like it did in such a system. Would it likely have been worse?

By: Foppe

Foppe — Thu, 06 Dec 2012 09:40:47 +0000

(whoops, should’ve put khuzami’s name after ‘of enforcement’)

By: Foppe

Foppe — Thu, 06 Dec 2012 09:40:12 +0000

Euhm, felix.. not to put too fine a point on it, but where in this article do you mention that the SEC’s head — Khuzami — of enforcement is ex-DB?