Deutsche Bank Investigated on Trust Operations – NY Times Spotlights Ackermann

For the past three years Deutsche Bank has tried to deflect any blame for the implosion of the subprime mortgage market, claiming that as trustee it had no role in the bundling and selling the underlying toxic securities.  Now Deutsche Bank's trustee activities are being investigated by New York State's attorney general: 

The stakes are potentially high. If the trustees did not follow the rules set out in the prospectus, they may be liable for breaching their duties to investors who bought the securities. That could expose the banks to costly civil litigation.

A complex process that produced hundreds of billions of dollars in securities during the lending boom, the issuance of mortgage securities began with home loans, which were then bundled into investments and sold to pension funds, mutual funds, big banks and other investors. The bundles were created as trusts overseen by institutions such as Bank of New York and Deutsche Bank; they were supposed to make sure the complete mortgage files for each loan were delivered within a specified time and with the proper documentation.

All signs point to gross negligence by the banks in their performing their duties as trustee:

The terms of these mortgage deals varied, but many of them required that the trustee examine each of the loan files as soon as they came in from the Wall Street firm or bank issuing the security. For a file to be complete, it would typically have to include all of the information necessary to establish a chain of ownership through the various steps of the bundling process, as when the originator transferred it to the issuer of the security who then moved it to the trustee.

Complete loan files were supposed to be delivered to the trusts within 90 days in most cases. If the trustee found any missing or defective documents, it was supposed to notify the loan originator so that it could either cure the deficiency or replace the loan. Such substitutions are typically allowed only in the early years of the trust.

Goldman Sachs has always been the center of attention here for its political and financial clout and for its questionable role(s) in the global financial crisis.  But over the weekend the New York Times published a comprehensive profile of Deutsche Bank's CEO Josef Ackermann, which appeared on the front page of its business section.  The reporter bent over backwards come across as "fair and balanced" and unfortunately glossed over Deutsche Bank's destructive role in the US mortgage crisis:

In fact, the reputation of Deutsche Bank, and its leader, has taken a few hard blows at home and abroad. Deutsche Bank was a big player in those toxic collateralized debt obligations that Wall Street sold during the American mortgage bubble. This year, a Senate report about Wall Street and the financial crisis concluded that Deutsche Bank continued to churn out C.D.O.’s even as the market was collapsing. A top trader at the German bank also wagered against some of the mortgage bonds inside those C.D.O.’s, the report found, much the way Goldman Sachs has been accused of betting against its own clients. (Goldman denies that.)

But at least the article mentioned (IMF economist) Simon Johnson's verdict that Josef Ackermann is "the world's most dangerous banker". 

FInally, Deutsche Bank has backed down from its retaliation against a foreclosure fraud investigator who blew the whistle on the bank's massive signature forgeries on thousands of mortgage documents: 

Deutsche Bank has dropped the son of high-profile foreclosure fraud investigator Lynn Szymoniak from the foreclosure case against her, according to new court documents.

Deutsche Bank has dropped the son of high-profile foreclosure fraud investigator Lynn Szymoniak from the foreclosure case against her, according to new court documents.

The bank had added Szymoniak's son, Mark Cullen, to the foreclosure suit this May, a move that many experts saw as an act of retaliation against Szymoniak, who has publicized banks' widespread use of forged signatures in the foreclosure process to improperly give borrowers the boot. On June 8, lawyers filed a "Notice of Dropping Party" with the Florida court dismissing its previous claims against Cullen.