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The FDIC discovers that Deutsche Bank is “horribly undercapitalized”

June 17, 2013

Late last week, the Vice Chairman of the US’ deposit insurance agency, the FDIC, said that Deutsche Bank is “horribly undercapitalised” . That should not be news to readers of this blog. However, when the regulator made this claim, he did not take into account the issues given below- else he would have added one more adjective to the description (awfully, horribly, undercapitalised?).
1) The Vice Chairman assumes that the value of assets, as stated in the balance sheet, is true. This is being too generous- particularly concerning its Level III assets which the bank is valuing in a “mark to myth” fashion. Fiddling with accounts is not new to Deutsche. At the height of the credit crisis, Deutsche misplaced $12 billion of asset valuation, for which it is being investigated by the Bundesbank. Again, in 2010, the bank is alleged to have fiddled with its computer models.
2) It is understating its legal liabilities in the US from the sub prime crisis.
3) It is understating the volatility of its trading book. After all, capital is necessary to cover unexpected losses in its trading book too.

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From → Credit Analysis

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