Josef Ackermann was bullish. Even as the global financial industry was reeling, the Deutsche Bank chief executive began 2009 by boldly declaring that his bank had plenty of capital and would return to profit that year.
In an investor call that February, Mr Ackermann said he would provide “as much clarity as we can on all the positions” to refute the suggestion that banks such as his had “hidden losses, and one day that will pop up, and then ... we need more capital and the only way to go – to ask for capital – is to see the governments”.
During the public relations campaign waged by Deutsche, its share price recovered from €16 in January to €39 at the end of April 2009, when it reported pre-tax profit of €1.8bn for the first quarter.
But three of the bank’s former employees say the show of strength was based on a fiction.
In a series of complaints to US regulators, two risk managers and one trader have told officials that Deutsche had in effect hidden billions of dollars of losses.
“By doing so, the bank was able to maintain its carefully crafted image that it was weathering the crisis better than its competitors, many of which required government bailouts and experienced significant deterioration in their stock prices,” says Jordan Thomas, a former US Securities and Exchange Commission enforcement lawyer, who represents Eric Ben-Artzi, one of the complainants....
By 2012, many of the trades have matured or have been unwound. With credit markets back to more normal levels, Deutsche’s dalliance with exotic derivatives is no longer life-threatening. A person familiar with the matter says that for all the sturm und drang over gap risk, at no time was the collateral jeopardised.First, how do we know that Deutsche's involvement with exotic derivatives is no longer life-threatening given the lack of ultra transparency? Perhaps the bank has a different exposure.
Second, that many of the trades have matured or have been unwound does nothing to address the fact that without ultra transparency no one can tell if Deutsche is solvent or not.
But the three former employees told the SEC that this outcome does not mean the allegations should be forgotten.
“If Lehman Brothers didn’t have to mark its books for six months it might still be in business,” says one of the men. “And if Deutsche had marked its books it might have been in the same position as Lehman.”