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.
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!!!
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.
Putting aside the personal bias that very much agrees with you, if you look at a bank as a machine, then the "top 10 executives" are very expensive, difficult-to-replace components of the machine. I don't know where you find people to run a bank of that size and complexity, and perhaps it's easier than I think, but I'd like to get a sense of how much damage those removals would make. Additionally, would making corporate leadership personally, criminally liable for the banks actions make finding a replacement even harder? (Of course, that's not a great argument since any standard you apply is going to make it harder to find a replacement. E.g. if we say "no sex offender can be a teacher" then it makes it harder to find teachers, but no-one would argue with that.)
The US was asking other banks for similar amounts since early on but they settle for less...
"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."
The funny part about stricter capital requirements is that banks somehow have to get that capital, which means they have to increase risks to lower risks.
Settlements are there to reduce the workload of an underfunded legal system that is incapable of coming to terms with the byzantine amount of federal and state regulation.
I wish the judge would prevent a settlement here and have the case tried. And put some evil bankers behind bars. And put the DoJ into its place in coming up with these outrageous amounts instead of a list of names of folks who did bad stuff! And their bosses as well for failing to control their thundering herds.
I am all for fining bad behaviour. What I do not like the resulting attitude and morale high ground.
The US clearly started the mess in the banking world and took the whole world down by selling it their housing loans. German bankers of the early 90s had no idea about the whole show, but were stupid enough to drink their Kool-Aid.
VW has been building smaller cars with lower mileage than its US counterparts for decades but now somehow is the prominent environmental offender?
"Bribery in Russia" and the German bank is the one that needs to be called out for this? Come one.
The US fine is only for shenanigans pulled in the US, other banks in US paid even higher fines (JPMorganChase and BoA settled for 13-17bn each).
The other investigations are handled by other entities in Europe and Russia. And there are two levels at play: breaking the law in the first place and then being stupid enough to be caught.
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.
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)
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").
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. ]]
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.
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?
> ...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).
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.
> 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?
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.
Banking entities that admit guilt risk having all sorts of government business pulled or other limitations placed on them. The Feds are protecting their own interests to a great extent. I think it's still the case that you can't even trade in US treasuries as a primary dealer if you get slapped with a major conviction.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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).
VW engaged in some heavy fraud and EU regulations don't allow for class-action style lawsuits like they do in the US. If anything, EU consumers should be angry their governments are kowtowing to Germany over this.
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..
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...
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-...
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!!!