You're listening to Taking Stock with Kathleen Hayes and Pim Fox on Bloomberg Radio. Deutsche Bank. The shares of Deutsche Bank have fallen by more than forty eight percent this year. Many investors are concerned that the lender faces a hefty fine from the US Justice Department. But could there be more to worry about in Deutsche Bank. Vernon Silver is our projects and investigations reporter for Bloomberg News and our Rome Bureau, and he joins us now to tell us more.
Vernon tell us about miss marking deals and is thirty seven? Is thirty seven deals? Is that considered to be well, you go ahead and tell the story because this involves a lot of money. Yeah, Here's here's what's interesting here Here in Italy, there's a well known scandal, which is how the oldest bank in the world, Montaski, allegedly used
a transaction to conceal hundreds of millions of losses. But on the other end of that trade with Deutsche Bank, and the investigations into that led to open a door cannon worms into a whole bunch of other transactions in the range of almost twelve billion dollars worth in which the accounting by Deutsche Bank on its side of the deal was similar to what they did with Monty Passkey. Now there is no covering up of of losses the
way they did with Passkey. But what's interesting about Deutsche Bank's own accounting is they they lent all this money out, but they didn't put it on their balance sheet um. And and that's where the the auditors found something of interest. And that's where Deutsche Bank already has had to restate the way that it accounts for these billions of loans um. It's not material, it's not anything that more than a trillion dollars an assets. You know, it's not going to
tip the scales about their their financial health. But analysts they're saying that this is indicative of the complexity behind the real numbers of Germany's largest banks. Well, let's just just just take us little bit further to really break it down for us in terms of what they did and why will they say, oh, we were it's a complex transaction and we did exactly what we were supposed to do with it. That's why it's not there. Will this be a case will they'll eventually be charged with
and have to admit to out and out fraud. What specifically is this going to turn on, because quite apart from you know, losing money, there's a whole question of credibility of behavior that it sounds like the crossed way over the line. Absolutely, this is a question of reputational risk.
And this is what the auditors point out. There's nothing in here to indicate that anybody committed any crime um and there was a justification for the way that they accounted for these loans without actually making them look like there were loans on their balance sheet. So what happens the accountant the auditors uh came in and said, now if you can't, you can't do it this way. And
it wasn't a mistake. The papers that we've that about the way that the Mounti Pasky deal was constructed showed that it was really important that they account for these off of the balance sheet because the more the more of these deals you can do without it impacting uh,
you know, your own finances, the better. Is the way that that the endless who are trying to understand that they're saying, vernon do we also need to be concerned about derivatives because in the twenty fifteen annual report, Deutsche Banks said that it's exposure to derivatives was nearly forty seven trillion dollars. Now I understand, I know this is the notional value. So uh, it's not as if it's
gonna oversee all of their counterparty transactions and clearings. But forty seven trillion dollars to put to put this in context as a political issue, because like we're in Europe and there's you know, put the politics are swarming all around this. Here in Rome, the Prime minists to Renzy when asked, you know, hey, aren't you going to clean up the Italian banks and Monty Pasky? Are you gonna have to bail them out? One of his biggest and strongest responses is to say, you know what, me, worry
look at Deutsche Bank and the derivatives. They've got a look at the German banks. Um. So that's that's part of what you brought up. Is exactly what the Italian political response to this is. And it will be interesting to see as both Deutsche Bank and Monty Pasky coincidentally or not the two banks involved in in the deal that sparked all this, If either of them gets closer to the brink um if it becomes a political issue, if you know, will clean up ours if you clean
up yours? You know. Also, this seems to be the potential perallel of UH to the two thousand, two thousand nine banking crisis in the United States. Ben Bernaki said he hated beating out those banks, right, but he had to to support the financial system. Now, if I'm Nzy, if I'm the Italian regulators and government, maybe I say, look, uh we can maybe I could. They could kick out managers, they can take that f d I C like kind of step. But they might say, no, we cannot let
big institutions like this go down. Yeah. Absolutely, I mean that's the case with multi Passky, which you know, some of the you know, the investors have and and even political figures have pointed out as possible spark of some kind of systemic risk. Um. That's why there is such an urgent need on the part of the Italian government to make sure that it sells off its bad loans
and that it gets UH new new investors. But what we're seeing with with the Stoutsche Bank transaction and the fact that there was there was accounting around the world that was that was constructed to not show exactly the way things really were. Is the question of this is a whole way that you do business have to be changed? Um, do we really know what the risks are and are there incentives or disincentive for for this kind of financial engineering?
Burnon Silver Triffic Reporting, Thank you so very much for joining us. He is Bloomberg News Investigations reporter in Rome. His story today Deutsche Bank miss mark thirty seven deals like Pesky's. The audit says, very important story, very important development for European banks and the European financial system. I'm Kathleen Hayes along with P M. Fox. We're gonna be turning our attention to financial advisors. Is one of the top women advisors in the country. This is Bloomberg