Just two months after Deutsche Bank was fined $165 million for not only still rigging FX when its currency traders were found to still be participating in banned chat boards, but for violating the Volcker rule, the chronic German recidivist bank, whose endless criminal activity cost the jobs of the entire previous management team… has violated the Volcker rule one again. And this time the bank faces a double whammy of not only breaching the terms of its latest settlement with the Fed, but is also facing a $60 million derivative loss for a TIPS-linked trade gone bad, which also happened to front-run its clients!
As Bloomberg reports, citing “people familiar”, DB made a bet on U.S. inflation that puts the firm on course to lose as much as $60 million, While the specifics of the trade are not available, it appears to have been a TIPS-linked bet on inflation rising. As everyone, and certainly the Fed knows, precisely the opposite has happened, and it is now another humiliating mark on the face of new CEO John Cryan, as he has to explain not only why the bank broke the terms of its consent order with the Federal Reserve, which stated, and we quote…Â
The consent order requires Deutsche Bank to improve its senior management oversight and controls relating to the firm’s compliance with Volcker rule requirements.
… but because the loss also appears to be in major breach of that particular unit’s VaR limits, suggesting not only a Volcker Rule violation but also a general lack of risk oversight. Bloomberg confirms as much, reporting that the bank has “been examining whether Deutsche Bank traders breached risk limits on the deal” and adds that “a risk limit violation could indicate a weakness in the bank’s oversight of its traders in a business that earned about $270 million in the first quarter. “
Such a loss would be a setback for Chief Executive Officer John Cryan,
who has been trying to improve the lender’s risk and operational
controls that have drawn scorn from regulators around the world.
