
Deutsche Bank to fight $14B demand from U.S. authorities - endswapper
http://www.reuters.com/article/us-deutsche-bank-mortgages-idUSKCN11L2VQ
======
chollida1
There are a few issues at play here:

1) Deutsche is a "too big to fail bank" in Germany,

2) This fine is being imposed by the USA

3) Deutsche is already teetering as it without this fine. See:
[https://www.ft.com/content/9a018afe-3e37-11e6-9f2c-36b487ebd...](https://www.ft.com/content/9a018afe-3e37-11e6-9f2c-36b487ebd80a)

4) It's borrow costs, which banks live and die by, are increasing due to all
of this which leads to pretty awful feedback cycle that it may have trouble
getting out of without ending up being owned by the German government.

The problem for the world si that Deutsche has a "shit load" of derivative
exposure, now in today's world, almost all banks have some, but Deutsche,
under Boaz Weinstein took bank derivative exposure to a whole new level and
they've been trying to dig themselves out of this hole for the past 5=7 years.

[http://www.cnbc.com/2016/07/15/deutsche-bank-a-ticking-
time-...](http://www.cnbc.com/2016/07/15/deutsche-bank-a-ticking-time-
bomb.html)

The world's financial community can't really let Deutsche fail as this would
trigger a whole whach of ISDA agreements, sort of how in 2011, Greece's banks
failed, but they didn't "fail" in the strictly legal sense that would trigger
default clauses on their agreements.

Who would have thought that the German's would be the ones to start the next
financial collapse:)

No as to the fine, they aren't anywhere near the first bank to be charged and
fined and all the others had their fines cut atleast in half.

Just incase you don't think this is terribly serious..... Deutsche Bank's 5
year default probability just jumped up to 15.8%. For a bank, that's huge, no
other large bank is anywhere close to that!!!

~~~
mtgx
At this point I'd much rather see these banks _keep_ their $5-$10 billion in
fines, but have at least the top 10 executives imprisoned. That would be a
_way_ better incentive for the banks to stop defrauding people, and they
wouldn't lose nearly as much money, so if they are indeed in financial
troubles, they can survive it.

What I _definitely don 't want to see_ anymore is letting big banks get away
without any punishment "because that would endanger the economy." It's
ultimately a poor excuse for not punishing criminal behavior, because failure
to punish is defacto condoning of the crime, and it will happen again in the
future. If you want to stop that, then some form of _effective_ punishment
must be done.

~~~
maxxxxx
Absolutely right. It's pretty clear that the fines don't prevent misbehavior.

~~~
thefastlane
the primary knock-on effect is probably that it accelerates the process of
offshoring back- and middle-office teams to less expensive jurisdictions.

------
rrggrr
DB is in trouble, with derivatives exposure so large that failure will
certainly mean intervention by the German government and global banking
system. For this reason, and because US banks and the Fed stand have at stake
much more than $14b, you can bet DB will settle for far less than DOJ's
demand. Size matters when deciding if something is really a political issue
and not an law enforcement or economic issue. tl;dr - If you want to get away
with a financial crime don't just go big, go systemic.

------
bko
Not sure about the details of this specific settlement discussion, but if
you're curious as to where this money generated from bank fees goes, here is a
breakdown of JP Morgan's previous settlement:

4 billion: consumers (loan mods, new loans, reduction of foreclosure blight)

4 billion: Fannie/Freddie

2 billion: US govt

2 billion: credit unions and FDIC

1 billion: state govt

[http://money.cnn.com/infographic/economy/jpmorgan-
settlement...](http://money.cnn.com/infographic/economy/jpmorgan-settlement/)

~~~
yummyfajitas
The "4 billion: consumers" is misleading.

It includes significant chunks of money that go to political cronies of the
justice department - e.g. ethnic nationalist groups like Urban League or
National Council of the Race ("La Raza").

[http://www.wsj.com/articles/justices-liberal-slush-
fund-1449...](http://www.wsj.com/articles/justices-liberal-slush-
fund-1449188273)

~~~
throwaway729
_> cronies of the justice department_

Note to future readers: This is an inaccurate characterization. Also, the
article linked to is some political FUD; every other paragraph contains a quip
about a lawless Obama or corrupt Democrats (which is off-putting but would be
fine if the author had managed to cite a single primary source.)

Here are some facts I was able to dig up (with my editorials/thoughts/WAGs
marked as such by [[ ]], since the WSJ article irritated the hell out of me by
not bothering to delineate fact from pure unsubstantiated bulshit...):

* In a few high-profile financial fraud cases, DoJ incentivized large financial organizations to donate to nonprofits by crediting those donations against the total awarded amount at greater than their real value.

[[ Presumably DoJ did this because DoJ felt even at the discounted rate,
sending money directly to non-profits with existing strategies and networks
would be more beneficial to the most effected victims than the alternative.
Which is probably true, since the alternatives would likely be some negligible
payout to large numbers of people or else just putting that money back into
the federal budget. ]]

* Allowing discounted donations to charities that assist effected groups is not unprecedented in federal lawsuits, and this practice pre-dates the Obama administration.

* It's somewhat difficult to actually find the the "list of government-approved nonprofit beneficiaries" alluded to in the article, which yummyfajitas/the author selected from ("La Raza", "Urban League").

My best guess is that they are both referring to the NeighborWorks Network,
because that's the only charity explicitly mentioned in either of the
settlements [3,4]. If I'm wrong, yummyfajitas should point us to this white
list so that we can determine if the list is systematically biased or if it
just happens to contain charities with left (as well as right) leaning biases.
Especially because I was unable to find such as list in any of the mentioned
settlements.

* NeighborWorks is a network of 240+ charities [1]. Government agencies supporting the network is not unprecedented [2]. The network has a varied history and no single delineated origin, but it's not entirely inaccurate to say that Congress created the NeighborWorks network during the Carter administration [2].

* Using the NeighborWorks Network as a proxy for federal assistance pre-dates the Obama administration.

[[ It's difficult to say whether there's a political bias in the NeighborWorks
list; I think this point is probably debatable. ]]

[[ Most of those charities do appear to be focused on housing issues. Which
are exactly the type of charity it makes sense to subsidize with cash from a
settlement regarding financial fraud that disproportionately effected former
home owners. ]]

[[ More generally, I'm not convinced that sending money to charities with a
targeted political bias is a bad thing. For example, consider a large billion-
dollar DoJ suit against the patent troll or a troll sending out false take-
down requests. I think it'd be great and also fair to send some of that money
to the EFF instead of into the fed gov't's coffers, even though the EFF
clearly absolutely 100% has targeted political biases... ]]

[[ Given the list of charities, it's extremely unlikely that any of the
settlement money was used to "campaign against voter ID laws" as yummfajita's
only source charges, and as a matter of law none of the settlement was
(legally) used to support a specific candidate due to the nature of the
charters of the organizations in the network. ]]

[1] [http://www.neighborworks.org/Our-
Network](http://www.neighborworks.org/Our-Network)

[2] [http://www.neighborworks.org/about-us/what-we-
do/history](http://www.neighborworks.org/about-us/what-we-do/history)

[3] [https://www.justice.gov/opa/pr/bank-america-
pay-1665-billion...](https://www.justice.gov/opa/pr/bank-america-
pay-1665-billion-historic-justice-department-settlement-financial-fraud-
leading) \-- links to settlement at bottom of page.

[4] [https://www.justice.gov/opa/pr/justice-department-federal-
an...](https://www.justice.gov/opa/pr/justice-department-federal-and-state-
partners-secure-record-13-billion-global-settlement) \-- linksto settlement at
bottom of page.

~~~
yummyfajitas
You seem to object a lot to the tone of the article. But you don't seem to
object too strongly to the facts, unless you are somehow claiming that money
to La Raza is actually consumer relief. (I merely claimed that it isn't.)

If you want to see the list it's not hard to find. It confirms that BofA gave
$1M to La Raza, and in return did not have to give out $2.3M in consumer
relief. Similarly for Urban League and a variety of other organizations.

[http://bankofamerica.mortgagesettlementmonitor.com/Reports/F...](http://bankofamerica.mortgagesettlementmonitor.com/Reports/February-29-2016-Report-2014-Bank-
of-America-Mortgage-Settlement.pdf)

 _Given the list of charities, it 's extremely unlikely that any of the
settlement money was used to "campaign against voter ID laws" as yummfajita's
only source charges..._

That's not the claim. The claim is that money is fungible, so if La Raza gets
$1 for purpose X, nothing prevents them from shifting $1 of other money away
from X and to source Y.

Do you claim any of the facts I've cited are false, or are you merely
criticizing my tone?

~~~
throwaway729
_> ...unless you are somehow claiming that money to La Raza is actually
consumer relief_

I'm claiming three things:

1\. It's not at all clear what the best way to provide "consumer relief" for
financial fraud on this scale even means. No one is even kidding themselves
that it's possible to undo or compensate for the damage caused. Therefore, a
relief strategy that basically spreads a lot of money throughout a bunch of
charities and non-profits generally helping big classes of people isn't an
unreasonable consumer relief strategy.

2\. the vast majority of the donations made as part of these settlements went
to decidedly non-partisan groups that could very plausibly support consumers
most effected by the prosecuted financial fraud. La Raza received 1M among
hundreds of millions provided to an enormous variety of types of charities and
non-profits. Is your claim really that DoJ crafted a 16B settlement is such a
way that they could funnel a measly million dollars to their "cronies" at La
Raza et al.? Or is it perhaps more likely that DoJ and BoA agreed on a large
set of organizations meeting certain criteria (like "provide housing/community
assistance") and started spreading the money around?

3\. Even to the extent that money went to partisan groups, it's not at all
clear a) why that's a bad thing (see: EFF comment); or b) that this effect was
intentional and the settlement calculated to achieve this outcome (as opposed
to: here's a more-or-less unbiased massive list of charities, pick some and
spread the money around).

 _> If you want to see the list it's not hard to find...
[http://bankofamerica.mortgagesettlementmonitor.com/Reports/F...](http://bankofamerica.mortgagesettlementmonitor.com/Reports/February-29-2016-Report-2014-Bank-
of-America-Mortgage-Settlement.pdf*)

This is not the document I was looking for.

The WSJ article claims there's a list of DoJ-approved non-profits that these
defendants could select from.

But I've been unable to find such a list. The list you provide here is the
list of organizations that _actually received money* from BoA. Not the list of
organizations that DoJ stated it was OK to give donations to. Which is
presumably a subset of a DoJ-approved list.

 _> Do you claim any of the facts I've cited are false, or are you merely
criticizing my tone?_

I'm not even sure how in the hell one goes about separating tone from factual
claim in a statement like "...significant chunks of money that go to political
cronies of the justice department..." The tone _is_ the claim. But to be
concrete, I think the intent ascribed to DoJ by the tone of your statement is
non-existent.

------
mtgx
_> In 2014, the DoJ asked Citigroup (C.N) to pay $12 billion to resolve an
investigation into the sale of shoddy mortgage-backed securities, sources
said. The fine eventually came in at $7 billion.

> In a similar case, rival Goldman Sachs (GS.N) agreed in April to pay $5.06
> billion to settle claims that it misled mortgage bond investors during the
> financial crisis._

What pisses me off is how can a bank pay $5-$7 billion in fines, and yet not
even have to admit that anyone was guilty? No individual responsibility
whatsoever, not even from the CEO.

If they pay $7 billion in fines, which is a lot, but they make $70 billion
from that fraud in profit over a period of years, is there really any
incentive to make them stop doing things like that in the future?

~~~
jsprogrammer
Read the court notices some time. A few years ago, BofA sent me a notice
saying they were settling all kinds of accusations of fraud for some billions
of dollars, but noted that the voluntary settlement was in no way an admission
of having committed any of the violations enumerated.

~~~
kesselvon
basically corporate hush money. "we didn't do anything wrong, but here's a few
billion just to keep your mouth shut"

------
maxxxxx
It's really sad to see how a once solid bank like Deutsche Bank was run into
the ground by CEOs who wanted to make their bank "modern" and squeeze out ever
more profit. Reminds me of Daimler-Benz when management decided they need to
grow and merge with Chrysler. What a disaster. I hope German company bosses
will learn that solid but boring is a good thing.

~~~
misja111
What seems to be always forgotten is that those over-aggressive CEO's are
elected to satisfy the demand of the shareholders, and the bulk of those want
only one single thing: more profit on their shares. And for the share price to
grow, being just a solid bank is not enough.

This doesn't apply only to banks, it happens also at other exchange listed
companies. But banks are the most tragic example of course, because if those
aggressive policies fail, the government has to step in.

Anyway, the bottom line is: it's not like all troubles in the financial world
are all the fault of some evil CEO's. The whole system is at fault, including
the shareholders themselves.

~~~
maxxxxx
In the case of Daimler-Chrysler there was no shareholder pressure. They would
have been happy with getting a nice dividend every year. It was pure ego trip
by the CEO (Schrempp) who wanted to play with the other big boys like GE. They
created a huge and expensive corporate headquarter far away from any car-
related activity to pretty much signal that management is above the guys who
produce cars.

Same for Deutsche Bank when they declared a 25% return on equity goal. Many
people said there is no way they can achieve this but the CEO kept pushing so
they had to rely on shady business practices and increase risk. It's a pure
ego trip. Nothing else.

------
vfclists
There is some insider trading going on here. Why was it around $15 about a
week ago, which didn't seem quite right, only for the Justice Department to
drop this bombshell?

It just means more QE from the ECB. The usual funny banking. More in the
pipeline.

------
jgalt212
Deutsche Bank is not bad.

There are/were bad people who have done bad things while at Deutsche Bank and
almost all of them are no longer there and almost none of their names have
been named.

~~~
atombath
If we don't know their names then how do we know they're no longer there?

------
jokoon
Its weird how prosecuting banks and big companies has become this new kind of
economic negotiations. Apple, google, microsoft, Volkswagen, hsbc, bnp
paribas, Deutsche Bank, ubs...

Just underlining this because I wonder what happens when it escalates.

------
pipio21
A reply to European(mostly German) decision to try to tax Apple...

US Government went furious with UE decision because they consider Apple more
than 200 billion dollars outside America their own. As all governments around
the world become progressively more and more broke they need money and
companies money abroad is the easy (temporal)solution.

I know US officials were considering a tax break soon in order to repatriate
all the money from US companies. The Europeans taxing Apple was considered a
threat by US of taking all this money before the US does.

I have friends in EU council and chairs had literally be thrown in the air in
the last days. Never forget the US is a military power that believes it is the
king of the world.

~~~
heisenbit
The decision was not about Apple's 200B globally but about the profit Apple
has generated within the EU in a time period limited by legal statues of
limitation. Without the de-facto only for tax purposes existing legal entity
in the Irland Apple would have had to pay these taxes in the past. In any
legal regime when one does intra-company transactions just for tax labeling
cosmetics one runs a severe risk that whatever one did is ruled irrelevant and
one is taxed as if the distorting transactions never happened.

Apple could have generated a lot of profit in the US and would have paid taxes
in the US on it and at the same time minimized their profit in the EU.
Alternatively Apple could have made the profit in the EU and less in the US
and paid taxes there. What they came up with - with the Irish Government
looking deliberately the other way - was allocating the profit to a fictional
vacuum and not paying taxes anywhere.

People should happy that this scheme ends. It is a slap on the wrists of the
Irish(!) government and primarily that. I believe intention goes beyond Apple
and Ireland - there are a lot of odd constructs out there also in the pharma
space involving other EU countries. Besides the taxman in the EU and also the
US the other main beneficiary of this decision will be all the big tax
accounting firms like PWC, EY etc. scrambling now to review their past advice,
cautioning less aggressiveness and trying to find more robust holes.

Stopping this nonsense is good for everyone. Having large pools of untaxed
money in regular companies is ultimately distorting the business focus,
reporting and capital allocation. People may believe Tim Cook is not an
innovator worthy leading Apple or exactly the right guy moving the company
along a stable growth path. Nobody thinks he is a good investment banker and
nor should he need to be one.

Good governance is about having sensible rules and enforcing them fairly. When
rules get broken systemically for a longer period for whatever reason righting
the ship gets messy. Is it fair to go back 10 years in case of Irland/Apple?
Are 14B enough for the DB case? Is VW paying enough? Is Wells Fargo? They all
get slapped on the wrist. Looking closer it seems with a feather - me doing
the same I suspect it would be handcuffs. I guess I'm not systemically
important enough.

------
cannonpr
This just highlights how strained US/German relations have become in the past
few years...

~~~
adventured
Not in the least (which isn't to say the relations aren't strained, just that
this has nothing to do with that). Other major banks were pursued for similar
amounts.

------
anonymousDan
Payback for the Apple fine I imagine.

~~~
antr
Apples and oranges

------
kuschku
With the way the US suddenly starts demanding dozens of billions from every
larger German company right when the TTIP negotiations stopped, this seems
like another shakedown.

(Compare fines for GM (several million) to planned fines for VW (around 20
billion), compare fines to US banks to this, etc).

~~~
easytiger
You will be downvoted here, but this is US economic imperialism in action.

~~~
adventured
If you were right, the US would not have pursued its own banks for similarly
massive fines.

~~~
kuschku
They haven’t, that’s the point. US companies on average got fines an order of
magnitude lower for the exact same thing, or worse.

------
Pica_soO
The company's escaped the legal system, but the states can still have some
influence, prostituting there legal systems as economic weapons to the highest
bidder.

Next stage, only control left to the state is access to the consumer, so its
taxing "unwanted" consumer behavior to hit your competitors. Oh, already
there..

