Last week I wrote about the outrage that US taxpayer bailout funds to AIG were used to make good on counterparty contracts with Deutsche Bank. I wasn't the only one upset by this. Now my friend Deepak Moorjani of Deutsche Bank Tokyo has gone public with an Open Letter to Deutsche Bank Shareholders on the Huffington Post super-blog. Deepak basically blows the whistle on Deutsche Bank's culture of recklessness that has destroyed $billions of sharelholder value:
"When speaking about the banking sector, many people mention a
"subprime crisis" or a "financial crisis" as if recent write-downs and
losses are caused by external events. Where some see coincidence, I see
consequence. At Deutsche Bank, I consider our poor results to be a
"management debacle," a natural outcome of unfettered risk-taking, poor
incentive structures and the lack of a system of checks-and-balances.
In my opinion, we took too much risk, failed to manage this risk, and
broke too many laws and regulations.
For more than two years, I have been working internally to improve
the inadequate governance structures and lax internal controls within
Deutsche Bank AG. I joined the firm in 2006 in one of its foreign
subsidiaries, and my due diligence revealed management failures and
also inconsistencies between our internal actions and our external
statements."
Deepak's reward for trying to end the reckless risk-taking at the bank was predicatable: management is taking legal action against him. Unlike most employees at the giant bank, Deepak has decided to fight back an go public with his knowledge. Copies of his correspondence with DB senior management can be found here.
With respect to the AIG bailout money, Deepak puts his finger on the outrage:
As these losses have grown, taxpayers are being forced to absorb these
losses. As an example, my firm recently received nearly $12 billion
from AIG (which has effectively been nationalized with $180 billion in
taxpayer funds). Essentially, every American household sent my firm a
check for $105. The reason for this payment: my firm bought credit
default swaps from AIG. In plain-speak, we bought unregulated
"insurance" from AIG to cover losses from bad trades. What did
taxpayers get in return? Nothing. Taxpayers simply paid an IOU
triggered by our gambling losses. (Note: This $12 billion payment was
more than 50% of our market capitalization at the time of its
disclosure).
So why did US taxpayers shell out $12 billion to cover Deutsche Bank's "gambling losses"? Good question. And now the US Congress wants to know the answer:
know why American International Group opted to use billions of taxpayer
dollars to make counterparty payments to large banks. Rep. Elijah E.
Cummings, D-Md., sent a letter signed by dozens of other
representatives to Neil Barofsky, special inspector general for the
government's Troubled Asset Relief Program, asking whether the payments
were "in the best interests of the taxpayers who provided the funding."
Meanwhile, Cuomo subpoenaed AIG for information regarding its
derivatives portfolio.
Hopefully, through Congressional action, taxpayers can recoup at least some of the funds.
