Recently Deutsche Bank CEO Josef Ackermann told analysts that his goal is to achieve a 25% return on capital. One way to boost profit is to sell fraudulent securities to institutional investors and then advise customers to bet against those investments. Now, one customer of Deutsche Bank is fighting back:
evening, accusing the global investment banking powerhouse of knowingly
selling M&T unsafe mortgage investments. M&T is seeking to
recover $182 million in losses and punitive damages.
In its lawsuit, M&T claims Deutsche Bank deceived M&T by
claiming the two securities it sold were “safe, secure, and nearly
risk-free” — even safer than corporate debt and nearly as safe as
Treasury bills. In fact, the suit says, Deutsche Bank knew that
its underwriting standards and due diligence had deteriorated, and bank
officials were already experiencing problems with subprime loans and
collateral “under their control” in 2006 and early 2007."
And here's the thing, as the New York Times makes clear in a long article about the fraud: even bankers within Deutsche Bank knew the investments were bad and were openly advising customers on how to make money by betting against them:
"The dangers were clear even to some inside Deutsche Bank. Several
months before the bank sold Gemstone to M&T Bank, Greg Lippmann,
who headed trading in C.D.O.’s and asset-backed securities at the bank,
was encouraging hedge funds to bet against mortgage investments."
When the history of the current financial crisis is finally written, Ackermann will be portrayed as either extremely lucky or very clever, for Deutsche Bank was a major player in underwriting and bundling $$billions in toxic securities. But, unlike its rivals, DB was able to sell off these assets to stupid (the German Landesbanken) or deceived (M&T Bank) investors, leaving others holding the bag.
"Deutsche Bank, however, emerged relatively unscathed from Wall Street’s misadventures in C.D.O.’s. While other banks, like Citigroup and Merrill Lynch,
were staggered by bad C.D.O.’s because they retained tens of billions
of dollars of the investments, Deutsche Bank has reported only modest
losses from its significant involvement in the American housing market.
say that Deutsche Bank, which is the world’s second largest bank by
assets after Royal Bank of Scotland, held on to fewer of the
investments it originated, selling more of them to investors like
M&T. It also, presciently, bought protection against mortgage bonds
at the urging of traders like Mr. Lippmann."
