Click here for Inner City Press' front page
ICP has published a
about the Deutsche Bank-relevant topics of subprime lending, and
corporate fraud - click here for
sample chapters, here for
and delivery, and here for
information. See also, "City
of ‘Predatory Bender’]," by Matt Pacenza, City Limits,
of July 2, 2018: Even
Reserve had to
admit that Deutsche Bank again
failed the stress
test. Now what
Update of April 24, 2017: Better late than never: "The Federal Reserve on Thursday announced two enforcement actions against Deutsche Bank AG that will require the bank to pay a combined $156.6 million in civil money penalties."
of February 29, 2016: A case we
are watching: "Deutsche Bank AG
must face a U.S. lawsuit seeking
to hold it liable for causing
$3.1 billion of investor losses
by failing to properly monitor
10 trusts backed by toxic
residential mortgages, a federal
judge ruled on Wednesday. U.S.
District Judge Alison Nathan in
Manhattan said Belgium's Royal
Park Investments SA/NV may
pursue claims that the trustee
Deutsche Bank National Trust Co
deficiencies in how the
underlying loans were
underwritten and serviced, and
failed to require that bad loans
of April 20, 2015: "Deutsche
Bank AG’s Dubai branch was fined
$8.4 million by the regulator of
the emirate’s financial free
zone for breaching its rules,
including providing false
information. The Dubai Financial
Services Authority, or DFSA,
said it fined the German bank
for “serious contraventions”
which include misleading the
regulator and for failures in
its internal governance and
systems controls related to
booking clients and
The $8.4 million amount is the
largest fine the regulator has
ever issued since it was founded
in 2004. The Dubai fine comes at
a time when Deutsche Bank is
expected to pay close to $1.5
billion to settle with U.S.
authorities for its alleged role
of manipulating interbank
lending rates, known as Libor."
Update of July 14, 2014: Revolving door, EU edition: Deutsche Bank AG (DB) has hired Luxembourg's Luc Frieden as vice chairman for international and European affairs from mid-September.Update of July 8, 2013: So Governor Jerome H. Powell gave a speech in New York last Tuesday at the reception for Deutsche Bundesbank. No surprised - he used to work for Deutsche Bank.... Bundes, indeed.
Deutsche Bank, which got involved as a direct subprime lender and as a trustee, has been accused by the City of Los Angeles of facilitating illegal evictions. Its attempts to get the case dismissed were rejected in April by the court.
And so now a settlement for a mere $10 million, of which Deutsche Bank brags it is not paying anything, that would be the services and the securitization trusts. When does immunity become impunity?Update of September 10, 2012: The FERC has given Deutsche Bank Energy Trading 30 days to show cause as to why it should not be fined $1.5 million and required to disgorge $123,198 (plus interest) of unjust profits for allegedly manipulating California energy markets, SNL Financial reported. The agency on Sept. 5 alleged that employees of Deutsche Bank, including some at the senior level, developed a scheme under which the bank's traders asked the California ISO to schedule exports of power over the 17-MW Silver Peak intertie in order to eliminate import congestion. The bank would then profit from the move because it possessed congestion revenue rights for the intertie.
Update of June 4, 2012: Deutsche Bank AG bragged that its special situations group won the auction for a $911 million loan portfolio being sold by two units of Capmark Financial Group: Midvale, Utah-based Capmark Bank and Capmark Finance LLC. Typically, DB did not reveal the price it paid...
Update of May 14, 2012: So Deutsche Bank, AFTER de-certifying with the Fed, now pays out a governmental settlement for predatory loans defrauding FHA. Wouldn't it seem like time for the Fed to reconsider that decertification?
Update of May 7, 2012:
Deutsche Bank Evades Fed, Tarullo Alludes to "Some Private
Actors," Blurs FOIA & Volcker Rulemaking
By Matthew Russell Lee
UNITED NATIONS, May 2 -- When the Federal Reserve's Daniel Tarullo spoke Wednesday at the Council on Foreign Relations about regulatory reform, he did not mention a single bank or financial institution.
Inner City Press asked him about Deutsche Bank, which earlier this year split off its investment banking business so as to avoid Fed regulation. Tarullo on March 22 told the Senate the Fed would have to "respond" to this, that it had some impact on this thinking on regulation.
Tarullo replied, "Matthew, what I said was it effected my thinking, not change, that implies a dramatic shift." Then he answered, six minutes in all, without once mentioning Deutsche Bank. He said that "the kind of changes some private actors are engaged in will have to effect the scope of our regulations."
These regulations, he
said, will be "under 165... to make sure we can implement
Congressional concern." We'll have more on this.
April 2, 2012: Inner City Press & FFW have also
joined others concerned with Deutsche Bank's
decertification as a financial services holding
company to escape Dodd Frank including its capital
adequacy rules -- particularly given Deutsche Bank's
role in the subprime scandal, as lender, securitizer
and now major forecloser.
Update of March 26, 2012: Deutsche Bank was big into subprime, as lender, securitizing and foreclosing trustee. But now that the Dodd-Frank law is coming into effect, Deutsche Bank is restructuring to avoid the law's requirements. We will have more on this.
Update of March 19, 2012: In 2008 Deutsche Bank "reported it has established a subsidiary in Peru to participate in the foreign exchange, government bonds and derivatives markets of the mining country."
So, exploitative mining and... DB's subprime troubles are even mentioned in France:
"Deutsche Bank a annoncé avoir réglé un litige juridique remontant à la crise du crédit hypothécaire à risque (subprime) aux Etats-Unis"
But they haven't really regle-ed or fix it at all...
Update of May 17, 2010:
Deutsche Bank has removed itself from the running for RBS
Sempra's energy-trading and retail-energy-supplier
businesses, largely because of expectations of a "Volcker
Rule" that would force banks to exit from
proprietary-trading businesses. Good. US-based anti
foreclosure activists are heading to Frankfurt to protest
Update of April 19, 2010: Large loans from Deutsche Bank AG helped to feed "the buildup of risk" in Iceland's banking system, which collapsed spectacularly in 2008, a comprehensive report from a parliamentary commission concluded.
Björgólfur Thor Björgólfsson, an Icelandic mogul, received a €153 million ($208 million) loan from Landsbanki, in which he and his father had a 41% stake, to satisfy demands from Deutsche Bank. The report said the German bank lent him €800 million in July 2007 to finance the takeover of generic-drug company Actavis Group. Landsbanki's former chief executive described the deal in an interview with the commission: "Then it ends...with us lending Björgólfur Thor our own money so he can honor certain things in Actavis," an apparent reference to satisfying debt covenants. Such transactions between a bank and its major owners are out of step with banking rules elsewhere. "Here, we call it insider dealing," says Cornelius Hurley, director of the banking-law program at Boston University. Prof. Hurley notes that U.S. regulations put "Draconian" restrictions on the amount and terms of loans to insiders.A Deutsche Bank spokeswoman declined to comment.
Update of March 8, 2010: The banks that helped conceal Greece's debt bomb included not only Goldman Sachs but also, on an arms deal no less, Deutsche Bank....
Update of December 28, 2009 -- While most observers and even participants describe the Copenhagen global warming talks as a disappointment, UN Secretary General Ban Ki-moon on Monday told the Press that they "sealed the deal" and were a success.
Inner City Press asked Mr. Ban about the scandal erupting around the undisclosed business interests of the chairman of the UN's Intergovernmental Panel on Climate Change Rajendra Pachauri, from the Tata Group through Deutsche Bank to Credit Suisse, and about the criticism by the chairman of the Group of 77 and its now 130 member states.
Mr. Ban entirely dodged the first question, paradoxically using it as an opportunity to praise business. On the second, he asserted that the chairman of the Group of 77 was not, in fact, speaking for the Group, since others' of its members spoke more positively.
Moments later, Inner City Press asked Sudan's Ambassador to the UN about Mr. Ban's comments. "Divide and rule," he answered, calling the Copenhagen process "climate apartheid." This phrase steps back from his counterpart in Copenhagen who analogized it to the Holocaust.
of interest are extensive and emblematic of the UN's
lack of transparency and safeguards.
As detailed in the Telegraph
In 2008 he was made an adviser on renewable and sustainable energy to the Credit Suisse bank and the Rockefeller Foundation. He joined the board of the Nordic Glitnir Bank... This year Dr Pachauri joined the New York investment fund Pegasus as a ‘strategic adviser’... He is on the climate change advisory board of Deutsche Bank... One subject the talkative Dr Pachauri remains silent on, however, is how much money he is paid for all these important posts, which must run into millions of dollars.
So, notwithstanding the non-responsive answer Monday morning, does Mr. Ban believe that Pachauri should make public financial disclosure of these interests? Watch this site.
Update of November 30, 2009: No honor among thieves: Deutsche Bank AG and a unit of BNP Paribas SA separately sued Bank of America Corp. on Wednesday, alleging that the bank has failed to repay about $1.7 billion in secured notes issued by a special-purpose entity. The breach-of-contract lawsuits, filed in U.S. District Court in Manhattan, allege that Bank of America has failed to redeem $480.7 million in secured notes held by BNP Paribas and $1.2 billion held by Deutsche Bank. The notes were issued by Ocala Funding LLC, a special-purpose entity that provided short-term liquidity funding to Taylor, Bean & Whitaker Mortgage Corp..."
Update of September 28, 2009 --
recently of predatory lending is Deutsche
of subprime foreclosures -- at a golf
tournament, no less...
Update of June 22, 2009 -- While human rights groups call for investigations of the killing of tens of thousands of civilians by the Sri Lankan government as well as Tamil Tigers, and for the government to release the hundreds of thousands of Tamils including UN staff whom it has in detention, this does not dissuade HSBC, or reportedly Citigroup and Deutsche Bank. Like some notorious hedge fund investors, They see only the chance to profit while there's blood in the streets.
The focus seems to be on Sri Lanka's ports, which are to be trebled in size. Getting many of the contracts, some have noted, are South Korean firms. But even the International Monetary Fund, which a month ago on May 21 said that the Rajapakse administration's application for a $1.9 billion loan would be approved "within weeks"(click here for the Inner City Press story) now says the proposal is not yet certain, is not agreed to. The government's use of funds for what many call ethnic cleansing is increasingly questionable.
of May 11, 2009: Over 500 tenants a month in New York
City alone are served with eviction papers due to their
landlords being foreclosed on. The number one evicter?
Update of March 30, 2009: Geithner Promotes Megabanks' including Deutsche Bank's Monopoly, in DC as at Fed, 17 Cut to 7 on Derivatives
Byline: Matthew R. Lee of Inner City Press on Wall Street: News Analysis
NEW YORK, March 28 -- Seven
megabanks' renewed grab for monopoly power in the over the
counter derivatives market shows how little Wall Street's real
power has changed in the transition from the Bush to Obama
The banks, including
Citigroup, JPMorgan Chase, Goldman Sachs, Morgan Stanley,
Barclays, Credit Suisse and Deutsche Bank, are paying over $1
million to p.r. firm Prism Public Affairs to "educate" the
voters weary of bonus and bailouts that those who caused the
crisis should benefit from it.
Already, Congress members hungry for campaign contribution have submitted to closed door briefings by Ed Rosen of the law firm Cleary Gottlieb, who drafted the legislative language for monopoly.
The connector in
this story is Timothy Geithner, under Bush the president of
the Federal Reserve Bank of New York and now Obama's Treasury
Secretary. Geithner in June 2008 convened closed door meetings
with 17 banks, essentially allowing them to propose and draft
their own rules for the derivatives market.
This led to advocacy by the Fair Finance Watch that Geithner's meetings were in fact rule making that excluded the public in violation of the Administrative Procedure Act, and by Inner City Press, as media, to get the meetings opened to journalists and the public.
9, 2009 --- Congress
during the debate about bailing out the banks decided that
non-US banks should not be getting TARP funds. Now it emerges
that of the $50 billion the Feds have given to AIG's
counter-parties, Deutsche Bank for example has gotten a full $6
billion. Worse, the Federal Reserve is trying to avoid
providing a listing of the companies who've gotten the public
money, as reiterated by Fed Vice Chair Don Kohn on March 5. This
is a new low, to be followed up in DC this week.
Update of November 17, 2008: Global fragment of the predatory lending meltdown -- What oversight will be given to Deutsche Bank and its continuing involvement in subprime lending?
Update of June 30, 2008: As Deutsche Bank looks to buy Citigroup's German operations, Citi's unions have laid down conditions that "management also emphasizes the need of employees in the talks with the bidders," that working conditions shouldn't deteriorate and the current locations be kept. But Deutsche Bank is vicious, and not only in its support of predatory lenders. So we'll see.
Update of June 16, 2008: This week, Inner City Press / Fair Finance Watch filed comments against the Federal Reserve's secret process with banks, in essence a rule-making excluding the public even those the topic, credit derivatives, has come up because of the subprime lending crisis. The financial institutions invited -- and now challenged -- included Deutsche Bank. The Administrative Procedures Act (5 U.S.C. Section 553) and related laws require that when the government engages in rule-making, it must provide notice to the public, and allow and weigh public comments. Press accounts make clear that the financial instruments and regulatory issues discussed behind closed doors at the FRBNY on June 9 are related to issues of public interest, which in fact are disproportionately impacting low- and moderate- income people and communities of color -- subprime and predatory mortgages. Watch this site.
Update of December 24, 2007: As the subprime foreclosure wave continues to gather strength, a major Wall Street (and Frankfurt) player, Deutsche Bank National Trust Company, has issued a memorandum purporting to urge its servicers to exercise restraint or at least discretion in evicting tenants from rental properties, and, apparently most important to it, to never include the name Deutsche Bank on any foreclosure or eviction filing without emphasizing that DB is only the trustee. Of course, it's an enabling role that Deutsche Bank chose and profits from. But Deutsche Bank wants it both ways. At least the memo has Deutsche Bank National Trust Company's contract numbers, which desperate consumers often call Inner City Press to request. They are, in Santa Ana, California, Tel 714 247-6000, Fax 714 247-6009. Inner City Press is putting the DB memo online, here.
August 13, 2007: Greenspan's Shameless Cash-Out to Deutsche Bank Is a Sub-Crime, Consumers Complain
Update of June 18, 2007: Deutsche Bank will have to go on trial for market rigging related to Parmalat SpA's collapse in 2003...
Update of June 11, 2007: Increasing exposed as a predator, Deutsche Bank buys subprime loans already in default then tries to foreclose on them: Michelle Tucker in Jacksonville, Florida, Sima Shwartz in Worchester, Mass. Now Ohio Attorney General Marc Dann has said he might sue. Here's hoping...
Deutsche Bank's misdeeds are not limited to predatory lending and service to dictators like Turkmenbashi. Pending now in New York's highest court in Albany is a case concerning Deutsche Bank Trust Company of NY's mis-administration of the trust of Harry Winston. App. Div. Docket No. 2006-01070. As recited in the pleading, Deutsche Bank was "woefully unprepared to oversee a diamond business. Richard Ritzel, [Deutsche] Bank's officer response for the day to day operations of the trust had no expertise in the jewelry industry and no experience in running any kind of business. In fact, no one in the Bank's trust department, including any member of its Special Assets Group, which supervised operating businesses, had any expertise in the jewelry industry"... Deutsche "Bank did not prepare (or did not preserve) records reflecting its performance as trustee or the performance of the trust." $120 million are simply unaccounted for...
Update of May 14, 2007: Deutsche Bank, beyond its enabling and now direct role in predatory lending, last week admitted to its long-concealed role for the recently expired dictator Turkmenbashi.
Update of March 12, 2007: Deutsche Bank is on record eying deals in Brazil...
Update of December 11, 2006: Deutsche Bank, which has bought two subprime mortgage lenders, Chapel Funding and MortgageIT, now says it plans to buy a subprime servicer next year, and it projects its subprime securitizations to jump 50% this year, to $21 billion...
Update of November 8, 2006: this week Deutsche Bank announced it has hired outgoing UN Under Secretary of Management Chris Burnham. Wednesday Inner City Press asked Kofi Annan's spokesman whether any post-employment restrictions apply to Mr. Burnham and now Deutsche Bank, and to address the issues raised by a senior UN official going to the main private banker of the leader of Turkmenistan, portrayed as a human rights abuser in a recent UN report. This report describes the "gross and systematic violations of human rights continu[ing] in the country." A/61/489.
Policies are being "elaborated on," the spokesman vaguely said. Inner City Press has obtained a copy of the draft post-employment policy. It proposes that "a former staff member of the [UN], at the Assistant Secretary-General level or above is prohibited from making, with the intent to influence, a communication to or appearance before any staff member [for] two years."
Strikingly, the only "sanction for violation" of this proposed policy would be to "have a note placed in the individual's official status file indicating the nature of the violation and the recommendation against any future employment by the Organization."
And this was the "gold standard" of post-employment restrictions? And as to Mr. Burnham new master, Deutsche Bank - Turkmenbashi, what about the "mainstreaming of human rights" which Kofi Annan has called for?
Update of June 12, 2006: From the Berkshire Eagle (of Pittsfield, Mass.) of June 10, a notice of what was in all probability a predatory loan: "Deutsche Bank National Trust Co, Ameriquest Mortgage Securities Inc., AMC Mortgage Services Inc. and Deutsche Bank National Trust Co. Trust sold property at 19 South Carolina Ave., Pittsfield." Ameriquest and Deutsche Bank - quite a combination... For or with more information, contact us.
Update of June 5, 2006: Deutsche Bank is planning to open 20 branches in Russia over the next two years, according to German newspaper Handelsblatt. Deutsche Bank already has a presence in Russia via its ownership of Russian investment bank UFG and its Moscow-based subsidiary.
Update of May 22, 2006: A deafening no-comment -- following the Wall Street Journal's May 11 article on the continuing investigation into the billions looted from Nigeria by ex-dictator Sani Abacha, which named as a conduit for Abacha's Transnational Bank's nostro accounts Deutsche Bank and only one other institution (Citigroup), nothing said by Deutsche Bank... A non-bank deal we see as significant was last week's announcement by Deutsche Bank that it intends to acquire California-based subprime mortgage lender Chapel Funding LLC. The idea is to cut out the middle man. The head of Deutsche Bank's Global Markets Americas unit, Phil Weingord, said that "the integration of a mortgage originator will provide significant competitive advantages, such as access to a steady source of product." Deutsche Bank is not only a trustee on subprime loans, it is also a securitizer. It has begun subprime lending in the United Kingdom, and last December bought a mortgage lender in Mexico, to securitize.... On March 24, 2006, subprime lender NovaStar simultaneously announced the purchase of a $940 million pool of payment option adjustable rate mortgages, and plans to structure its first securitization of the year as an on-balance sheet transaction. The $1.35 billion on-balance sheet deal closed April 28, led by\Deutsche Bank Securities - enabler of predatory lending...
Update of May 15, 2006: From Brussels, E.U. officials wrote a letter to the German economy minister last month seeking clarification of the deal between Deutsche Bank, German state bank KfW and Russian energy giant Gazprom for a proposed 1 billion Euro natural gas pipeline between Russia and Germany. Officials wish to determine whether the deal's details are compatible with E.U. regulations.
Update of May 1, 2006: In a public forum in Brussels last week, marking the formation by NCRC and others of the ICRC, Deutsche Bank's Jeorg Hohling said among other things that there is not gap in credit availability in the former East Germany, nor elsewhere in Europe or the rest of the "First World." He also stated that while Deutsche Bank wants to hear from its customers (or clients, as translated into French), it has less interest in hearing from organized groups. When asked about credit availability in U.S. inner cities, and Deutsche Bank's role as foreclosing trustee for many high-cost subprime lenders, Mr. Hohling did not respond, at least not only the platform. Whether DB's usury by stealth (as one workshop at the forum put it, with Deutsche Bank diplomatically referred to as "Bank Number 8") gets reformed remains to be seen...
Update of March 13, 2006: Deutsche Bank AG said March 9 that it restated its fourth-quarter earnings to include an adjustment to its legal provisions related to a U.S. investigation of illegal tax shelters. Deutsche Bank was reportedly in talks with the Justice Department about settling the investigation, but had been unable to produce documentation for some of the alleged transactions, causing speculation over whether the transactions were ever executed at all.
Update of March 6, 2006: In the wake of Ameriquest's predatory lending settlement, From the Arkansas Democrat-Gazette of Feb. 26, a sample warranty deed from " Deutsche Bank National Trust Co., trustee of Ameriquest Mortgage Securities Inc., to Michael Kirkland and Teresa Kirkland, Lot 6, Villa View Estates, Siloam Springs, $172,000, signed Feb. 7." Deutsche Bank and Ameriquest…
Update of November 21, 2005: A French judge reportedly wants to scrutinize bank accounts of Osama bin Laden's brother for possible money-laundering. According to a report in Le Journal du Dimanche, French Judge Renaud van Ruymbeke apparently made the demand to Berne public prosecutor Claude Nicati in Switzerland. Van Ruymbeke heads a money-laundering inquiry targeting the financial operations of Yeslam bin Laden, brother of al-Qaida's head. Yeslam bin Laden has been living in Switzerland since 1973 and has Swiss citizenship. “At issue is a suspicious financial transfer of $300 million to Pakistan via the Deutsche Bank in Geneva.”
Update of October 31, 2005: At the United Nations on October 26, there was bragging about Deutsche Bank’s micro-finance programs. Not addressed was Deutsche Bank’s failure to respond to a complaint to the UN Global Compact (by ICP/Fair Finance Watch) regarding Deutsche Bank’s business with the dictator of Turkmenistan. For shame...
Update of October 17, 2005: The Federal Reserve has fined Deutsche Bank for lax anti-money laundering procedures - clickhere to view and note that it’s the same DB subsidiary, Deutsche Bank Trust Company, which foreclosures on predatory mortgage loans...
Update of June 6, 2005: Deutsche Bank’s response to issues ICP raised to the United Nations Global Compact, including Deutsche Bank’s unseemly role as the main banker for the dictator of Turkmenistan (who had renamed the months in that country for his mother, and forces all resident to read his book Ruhnama), consists of a half-page about “sustainability criterias” [sic], ISO 14001 and the repetition of Breuer’s statements about DB’s business in Kazakhstan and Turkmenistan. We can only ask -- why not Belarus?
Update of April 11, 2005: On the human rights beat this week, we have this update from the staff of the United Nations’ Global Compact:
Date: 4/5/2005 5:46:37 PM Eastern Standard Time
From: [Global Compact staff at] un.org
To: HRE [at] fairfinancewatch.org
I am writing
to let you know that Deutsche Bank and HSBC have both
acknowledged receipt of my e-mail to them forwarding the issues
that you raised and indicated that they would
research the issue and provide a reply.
We’re still waiting...
Update of March 14, 2005: While awaiting Deutsche Bank’s response on, among other things, the Turkmenistan issues below, we note DB’s sharp practice in Asia as well: after arranging a share sale in China Aviation Oil Singapore Corp. just before the company's collapse, DB has offered to buy some of the oil trader's debts of $648 million. Deutsche had offered to buy CAO's debt for 40 percent of its face value upfront. Deutsche arranged the sale of a 15 percent stake in CAO worth about S$196 million on Oct. 20, about a month before the firm collapsed. Court documents filed by CAO's suspended chief executive, Chen Jiulin, have alleged that parent China Aviation Oil Holding Co. knew of the losses when it made the sale through Deutsche. Deutsche spokesman Michael West has said the CAO transaction was in accordance with normal market practice. Hmm...
Update of March 7, 2005: The U.S. State Department 2004 Human Right Report issued last week says of Turkmenistan that the regime of “President-for-life Saparmurat Niyazov... censored newspapers; approval from the Office of the President's Press Secretary was required for prepublication galleys. There were 22 newspapers published in Turkmen and only 1 official newspaper in Russian; the only major daily newspaper was printed in Turkmen and Russian. The major stories were identical in both papers while advertising and some content varied. Foreign newspapers, including Russian-language publications, from abroad were banned. To regulate domestic printing and copying activities, the Government required all publishing houses and printing and copying establishments to obtain registration licenses for their equipment. The Government required the registration of all photocopiers and mandated that a single individual be responsible for all photocopying activity.” As previously reported by Inner City Press and Fair Finance Watch, Deutsche Bank handles and profits from Niyazov’s money.
Update of February 14, 2005: Opposition continues to grow to Deutsche Bank and its plans to layoff almost 2000 staff in Germany, and 4400 elsewhere. The president of the SPD in Hesse, the German state which includes Frankfurt, where Deutsche Bank is based, said on Feb. 8: Every customer of Deutsche Bank can consider whether he is doing more for jobs in Germany by switching to a public Sparkasse (savings bank) or a cooperative bank”...
Update of February 7, 2005: In Turkmenistan, President Saparmurat Niyazov is the man who makes the decisions for oil and gas. He signs the E&P deals or JV agreements with foreign companies. APS Review Downstream Trends of October 4, 2004 calls his regime "the most repressive" state in Central Asia --
"The constitution says Turkmenistan is a 'secular democracy' in the form of a presidential republic. In practice, it is a Niyazovland in which policy is only what the president decides - a private estate with its income going to the "presidential fund", now worth over $ 5 bn, which is managed by Deutsche Bank in Frankfurt. Only Niyazov can use the money. Parliament is dominated by his Democratic Party of Turkmenistan, the sole political group in the country."
Excerpts from report by Turkmen TV on October 31, 2000: "Yesterday Turkmen President Saparmyrat Turkmenbashy received a member of the board of German Deutsche Bank, Tessen von Heydebreck, who is leading a visiting Deutsche Bank delegation... They talked about Turkmenistan's economic potential; von Heydebreck praised the country's economic development program."
TASS News Agency of October 30, 2000: "Investments in the oil and natural gas sector of Turkmenistan are seen as a high priority by the Deutsche Bank, its officials assured President Saparmurat Niyazov during the course of their meeting in Ashkhabad on Monday. Niyazov and Deutsche Bank board member Tessen von Heidebraek highly assessed the fulfilment of the agreement on cooperation between the German Bank and the government of Turkmenistan signed in 1996 and approved the signing of a new agreement on continued cooperation. the German Bank and the government of this Central Asian republic will sign a framework crediting agreement on the funding of the investment projects, including the supplies of equipment and provision of services."
Commenting on Deutsche Bank's presence in Central and Eastern Europe, ['DB CEO Rolf] Breuer "emphasized that its longstanding, close relationships with these countries have been important even during times when the political and economic climate has been difficult. Deutsche Bank was pleased to accept the challenge to help rebuild the economies of Central and Eastern Europe. The opening and liberalization of these markets offers further businesses in which the bank expects to see substantial growth. Deutsche Bank is currently represented through offices, branches and subsidiaries in Georgia, Kazakhstan, Croatia, Poland, Russia, Romania, the Czech Republic, Turkmenistan, Ukraine, Hungary and Uzbekistan. " (Breuer Statement of September 25, 2000)
Deutsche Bank is, ironically, a member of the UN's Global Compact. Developing...
Update of January 24, 2005: Deutsche Bank plans to expand in Russia and wants to acquire a 10 percent stake in Vneshtorgbank (VTB), Germany's Handelsblatt newspaper reported on January 21. Deutsche Bank also plans to submit an offer in the coming week for KMB Bank, the newspaper said, quoting financial sources in Moscow. We’ll see..
Update of November 1, 2004: Deutsche Bank is
threatening to take its ball offshore: "Germany is not the most obvious
location for a holding company... We have to change this,"
Deutsche supervisory board Chairman Rolf was quoted last week by
the German magazine Stern. Breuer
added that the bank's retail banking business would stay in
Germany: "No one would think of serving German private clients
from Amsterdam or Jersey or from wherever a holding could be
based." Ah, Jersey - or the Isle of
Man? Why not the Caymans?
Update of September 6, 2004: From the mail bag:
Date: 9/1/2004 2:05:50 PM Eastern Standard Time
From: [Name Withheld]
To: DB-Watch [at] innercitypress.org
Your update (seen below) was rather interesting. As a former consultant at said bank, I would direct you to look further into the Real Estate funds at DB. You may find that after the departure of one Richard Gunthel, the firm lost control of some of it's 40 billion real estate portfolio as Mr. Guthel felt he built the fund so he should take it with him when he retires. A favorite phrase of Richards was "secret control is the key".
There is a degree of speculation here however, not much. After refusing to destroy e-mails within the group, I was no longer a consultant with Deutsche.
Richard Gunthel - Ted Stratis - Peter Moio - Insiders
Editor's note: the publication Estates Gazette, back on September 28, 2002, reported that
Richard Gunthel, managing director and global head of DB Real Estate, has retired and been replaced by Donald King, managing principal of US property asset manager RREEF, which DB bought for $ 406m (£261m) in April. Simon Cooke, chief executive of UK arm Deutsche Property Asset Management, said: "Dick did a fantastic job in building the global real estate business and acquiring RREEF, but he recognised that Don was the best person to run the business he'd created. "Dick's experience has been in real estate private equity and, at 55, he obviously decided to retire rather than go back to that." Cooke said King would initiate changes at DB Real Estate, involving "some restructuring".
Apparently there was more to it than was reported at the time... For or with more information, contact us.
Update of August 23, 2004: Deutsche Bank and multi-family: DB on August 16 announced a proposal to acquire "the origination and servicing assets of Berkshire Mortgage Finance LP"... A different stealth connection: on the boards of directors of both Halliburton and Deutsche Bank is one W.R. Howell, not of Gilligan's Island but J.C. Penney, per www.halliburton.com/about/board_of_dir.jsp ... For or with more information, contact us.
Update of July 19, 2004: Now here's an irony: the Baltimore Department of Housing and Community Development, complaining about the derelict abandoned home at 124 Denison Street, own by Deutsche Bank National Trust following foreclosure on a subprime loan, has sent its complaint to Inner City Press -- apparently based on an Internet search which led them to this page. Note to the Department: Inner City Press is not Deutsche Bank; in fact, we agree with this Baltimore Department (and others) that Deutsche Bank is an irresponsible company...
Update of November 10, 2003: Deutsche Bank on Nov. 3 disclosed a plan to buy a 40 percent stake in the Russian investment bank United Financial Group. The companies, DB said, will also form a "strategic partnership for the sale and trade of Russian equities, Russian equity research and Russian corporate finance."
Update of November 4, 2002: Reuters on October 29 reported that "Deutsche Bank is set to clinch the sale of its securities services business to State Street for $1.4 billion later this week or early next week... The sale forms part of Deutsche's plan to sell off non-core businesses and cut costs."
Update of October 28, 2002: on October 24, jeweler Harry Winston's son said he received court approval to sue Deutsche Bank for $1.3 billion for allegedly mismanaging the trust set up by his father. The son, Bruce Winston, seeks the removal of Deutsche Bank as a trustee. Bruce Winston alleged Deutsche Bank mismanaged the jewelry business that made up the bulk of his father's estate by ignoring financial reports and letting inventory diminish. Bruce Winston states he's received court approval to sue the bank from the surrogate's court in Westchester County...
Update of September 23, 2002: On September 16, Deutsche Bank announced the sale its U.S. leasing business, Deutsche Financial Services, to GE Commercial Finance for $2.9 billion. ICP has for some time been concerned with Deutsche Bank's stealth involvement in questionable subprime (and apartment building) lending in the U.S.. Most recently, ICP's been asked to look into DB's affiliate "TransAtlantic Capital Co., an affiliate of Deutsche Bank Securities" (that's from a 1998 SEC filing, listing the company's address as 31 W. 52nd St, 10th Floor, NYC). We've found that DB's Transatlantic Capital is the mortgage holder on, for example, 3018 Heath Avenue, Bronx, New York. This five story building, according to the NYC housing agency's data base, in the past twelve month has a whopping 60 housing code violations, including lead paint, mold, problems with access to the building's roof and heating system, mice, roaches, roof leaks, defective flooring, etc.. Transatlantic Capital, and therefore Deutsche Bank, bear some responsibility for this. But they appear to have no standards or safeguards in place for this business.
Update of July 29, 2002: In Frankfurt on July 23, German prosecutors said they are still deciding whether to file charges against Deutsche Bank head Josef Ackermann for approving huge management bonuses after the Mannesmann takeover battle in 2000. Ackermann, who took over as Deutsche Bank CEO earlier this year, served on the supervisory board of German telecommunications group Mannesmann during the months-long takeover battle with Britain's Vodafone Plc two years ago. The Duesseldorf state prosecutors office has been investigating Ackermann after the board approved millions of marks in bonuses to Mannesmann Chief Executive Klaus Esser and other managers as the takeover battle drew to a close.... In the U.S., on July 24 the Massachusetts congressional delegation asked Deutsche Bank on Wednesday to clarify whether it is seriously considering trying to reopen the bidding for bankrupt camera and film company Polaroid....
Update of June 24, 2002: Deutsche Bank's DB Hedge Strategies Fund LLC has applied to the U.S. SEC to enter the "retail" hedge fund market in the United States. Meanwhile, Bloomberg News of June 21 reports that "Virginia Gambale, a partner in the DB Capital partners unit of Europe's largest bank, claims she was passed over for a promotion because of her gender. Gambale, who also sued Deutsche Bank's Bankers Trust Co. unit, said the company's overall work environment is hostile to women. Her suit cited a September 1999 meeting in Cannes, France, attended by 100 male and five female executives, as well as a Marilyn Monroe look- alike who fondled several men." A spokeswoman for Deutsche Bank declined to comment on the suit.
Update of April 29, 2002: the New York Times of
April 24 reported that in February of this year, Citigroup
approached Deutsche Bank "to gauge whether the German bank would
be open to a takeover offer... according to several people close
to the companies... Executives from Deutsche Bank and Citigroup
declined to comment on the discussions." The following day,
outgoing CEO Rolf Breuer told the Boersen-Zeitung that "we have
never received an offer from Citigroup, let alone refused one." He
dismissed the possibility of an offer as improbable and indicated
both he and chairman designate Josef Ackermann would not approve
such a move. Time will tell...
Update of March 11, 2002: on March 7, Deutsche Bank announced a plan to buy U.S. property fund manager RREEF for a total of $490 million. RREEF operates from Chicago, San Francisco and New York and employs some 1,000 staff. "This completes our asset management acquisitions in the U.S.," Rolf Breuer told reporters in Frankfurt...
Update of December 31, 2001: On December 28, Deutsche Bank announced it will layoff an additional 2,100 employees, on top of 7,100 job cuts the bank has previously announced...
Update of November 26, 2001: Palace intrigue in Deutsche Bank: Ol' Rolf Breuer is reportedly under growing pressure to quit early to make way for his anointed successor, Josef Ackermann. At a meeting of senior executives in Kronberg outside Frankfurt earlier this month, the campaign to oust Breuer gathered force. One banker who attended the gathering was quoted by the FT as saying the meeting was "a fairly tense affair. People were very forthright." Over the weekend, the British press speculated that with Breuer weakened, Lloyds TBS and its CEO Peter Ellwood are trying to rekindle merger talks with Deutsche Bank...
Update of October 15, 2001: In Berlin on October 10, Deutsche Bank CEO Rolf Breuer told reporters that Deutsche could cut more jobs than previously announced as part of a restructuring. Deutsche, which has already announced plans to cut 2,600 jobs by 2003, is working on how to reduce its cost base. "The end result could have consequences for the number of employees," Breuer said, adding that he expects talks with Dresdner and Commerzbank aimed at merging all three banks' mortgage businesses would result in an agreement before year end... Meanwhile, Deutsche Bank's attempt to dump all of Seoul Bank's bad loans back on the Korean government has resulted in a cooling down of DB's plan to acquire Seoul Bank....
Update of October 1, 2001: ICP continues to focus on September 11 aftermath, Deutsche Bank-related and otherwise. Click here to view ICP's Second Special Report on banking connections to the plane-bombings, and terrorism more generally. Among the Deutsche Bank connections:
Last week, regulators in Luxembourg circulated a list of five banks, in addition to the 27 individuals and companies named in the U.S. Executive Order of September 23-24: Al Shamal Islamic Bank, Dubai Islamic Bank, Faisal Islamic Bank, Bahrain International Bank and Kuwait Finance House. Luxembourg has asked its institutions to alert it to any correspondent relationships with these banks. ICP has consulted the Bankers' Almanac, and found Deutsche Bank listed among the listed correspondents of Kuwait Finance House (and Faysal Islamic Bank of Bahrain).
In Frankfurt last week, Deutsche Bank CEO Rolf Breuer told reporters that his institution has identified several suspect accounts. "It's fewer than 10 accounts and the overall total amount is significantly less than one million dollars," Breuer told reporters. "We have cooperated with authorities... We support every endeavor to enable and simplify investigations." Asked whether he would welcome a relaxation of bank secrecy, he said: "Yes, if it helps to fight crime and terrorism -- I wouldn't have a problem with that." We'll see...For or with more information, contact us.
Update of September 24, 2001: In the aftermath of the September 11 plane-bombings of the World Trade Center and the U.S. Pentagon, Inner City / Finance Watch has prepared a report on bank links to Al Qaeda and other state- and non-state terrorist groups. As to Deutsche Bank, we note that Business Line of August 10, 2001 (distributed through the Financial Times Asia Intelligence Wire) reported that "[i]n the 1980s, at the instance of the Central Intelligence Agency (CIA), the Internal Political Division of the [Pakistani] Inter-Services Intelligence (ISI), headed by Brig (retd) Imtiaz... started a cell for the use of heroin for covert actions. This cell promoted the cultivation of opium and the extraction of heroin in Pakistan as well as in those parts of Afghanistan under Mujahideen control for being smuggled into the Soviet-controlled areas to get the Soviet troops addicted. After the withdrawal of the Soviet troops, the ISI's heroin cell started using its network of refineries and smugglers to send heroin to the West and use the money to supplement its legitimate economy....After capturing power on October 12, 1999, Gen Pervez Musharraf had Brig Imtiaz, because of his proximity to Mr Nawaz Sharif, arrested and prosecuted for having assets disproportionate to his known sources of income as an officer of the ISI and the Intelligence Bureau. He was convicted by a court on July 31, 2001, and jailed for eight years. According to evidence produced in the court by the National Accountability Bureau (NAB), Brig Imtiaz had foreign exchange bearer certificates worth $20.08 million, a Pakistani rupee account in the Union Bank with a balance of Rs 2.13 billion, a dollar account in Deutsche Bank with a balance of $19.1 million, five residential houses, five commercial units and three shops. This huge wealth was allegedly accumulated by him through heroin smuggling." -Emphasis added
In November 1999, the Federal Reserve granted an approval to Deutsche Bank; in connection with Deutsche Bank's acquisition of Bankers Trust (see below), the Fed purportedly reviewed Deutsche Bank's compliance with law, including Know Your Customer procedures. Deutsche Bank is even represented on the Fed's, OCC and SEC's Working Group on Public Disclosure. We question what "disclosure" the Fed has requested, or Deutsche Bank has provided, of DB's above-reported banking relationship with the Pakistani ISI's Imtiaz, now imprisoned... Click here for the full Report. Also: on September 24 Deutsche Bank announced it had agreed to purchase Zurich's U.S. fund unit Scudder in a $2.5 billion deal...For or with more information, contact us.
Update of March 26, 2001: on March 20, Deutsche Bank's buyout fund announced a deal to buy Whitbread Plc's 3,000 pubs (for American readers, bars) for $2.3 billion. Deutsche Bank says it plans to sell bonds backed by future food and drink sales -- that is, securitized drinking. If narcotics become legalized, look for securitization in that field, too... Deutsche Bank last week also obtained E.U. approval to buy Axa SA's Banque Worms...
* * *
In 1999, Deutsche Bank consummated its ill-fated acquisition of Bankers Trust, which among other things functioned as trustee (and forecloser) on high interest rate loans issued by subprime lenders like Delta Funding, even after Delta was deemed a predatory lender by New York State authorities. The transaction was delayed by these issues; Deutsche Bank committed to improve its practices, but has not. Inner City Press is re-beginning its Deutsche Bank Watch, above (year 2000 Deutsche Bank coverage, including the post-Bankers Trust exodus, was part of ICP’s Bank Beat page).
December 20, 1999
The numbers are finally in: Deutsche Bank has lost at least $26 billion in index fund assets since it acquire Bankers Trust, and saw and cause the exodus of personnel. DB’s return on equity for its most recent fiscal year was 10.4%, while, for example, that of four of the Canadian Big Six stands at over 15%. So the next move: DB is going to entirely eliminate the BT name, and begin selling mutual funds under its own name in the U.S. in early 2000. Good luck...
The Berliner Zeitung reports the DB will not be renewing the contract of Carl von Boehm-Bezing, who also sat on the board of construction company Phillipp Holzman AG, when it expires.
In final exodus news / speculation: ex-Comptroller of the Currency Eugene Ludwig has continued to pound out the op-ed piece, most recently a letter to the editor of the (London) Financial Times (Dec. 14, 1999). If you’re looking for him, he’s at the ominous black glass building at 130 Liberty Street in lower Manhattan, Mail Stop 2344. For now....
December 13, 1999
Deutsche Bank has now confirmed that its computer outage on December 1 stopped not only interbank payments, but also its securities ordering system for private clients. DB is now offering interest payments to other banks (some of whose executive are questioning why Deutsche would have installed new software just weeks before January 1. FT, Dec. 7).
Question: what happened to the Y2K freeze that DB presented to the Federal Reserve Board when it was buying Bankers Trust?
Second question: while DB implied to the Fed that it was moving in good faith to resolve Holocaust claims, the Washington Post of Dec. 11 reports that U.S. Deputy Treasury Secretary Eizenstat’s suggested compromise has been rejected. The German chief negotiator, Otto Lambsdorff, says DB and the others may break off talks if they aren’t convinced they will lead to “legal closure.” So what about that DB commitment to the Fed?
December 6, 1999
On December 1, Deutsche Bank was forced to stop international clearing of interbank payments, due to a computer software problem. Deutsche spokesman Klaus Thoma quickly noted that the shutdown of the Eschborn data processing center “has nothing at all to do with Y2K.”
One thing that DB does apparently want out of in Y2K is industrial holdings. In an interview with Der Spiegel, DB board members Carl von Boehm-Bezing said “Germany Inc. doesn’t exist any more and it shouldn’t exist any more... The world is no longer how it used to be when we wall rescued Matallgesellschaft together. Every bank is fighting for its own position. The solidarity of before has faded somewhat.”
The German magazine Focus reports that DB is considering withdrawing from the fund set up by industry and the German government to compensate Nazi-era slave labor victims...
November 29, 1999
In Thailand, Deutsche Bank has been sued by Central Pattana, for not delivering on a futures contract. Despite the supposedly smooth integration, DB immediately attributed the 500 million baht dispute to “Bankers Trust.” DB’s chief country officer for Thailand, Tomas Verlohr, refused to answer questions from the Bangkok Post, “saying he was not directly responsible for the deal.”
November 22, 1999
Bloomberg of Nov. 18 tallied the score of Deutsche Asset’s lost index funds under management: $26 billion and counting. Kansas Public Employees’ Retirement System’s CIO said its switch away from Deutsche was “primarily personnel-related.”
Mark Jacobsen, who worked for Eugene Ludwig when Ludwig was Comptroller of the Currency, and followed him to BT and then DB, has hit the road, back into government service as the FDIC’s chief of staff. ICP has heard no contradiction to earlier sources’ reports that Mr. Ludwig’s leaving DB in the coming months; the exodus-watch continues.
In Frankfurt on November 19, hundreds of construction workers demonstrated outside DB’s mirrored headquarters, calling for DB to do more to save construction company Phillipp Holzmann AG, which now plans to lay off 3,000 workers. DB owns 15% of Holzmann; one demonstrators said, “Deutsche Bank should have done much, much more.”
In the US, DB mailed out its “Community Focus” newsletter, dated Fall/Winter 1999. It leads with a headshot of John Ross, “delighted to be back in New York, and includes a “Getting to Know Deutsche Bank” column, complete with an eight-by-five inch glossy photograph of DB’s Frankfurt headquarters on a sunny day. A well chosen day: there are no workers demonstrating out front.
November 15, 1999
Not a week goes by... On November 10, Deutsche Bank confirmed that its U.K.-based money managers Ian Kelson and Simon Treacher are leaving the bank. Treacher has been overseeing emerging markets debt for Deutsche Asset Management; he’ll go to hedge fund Moore Capital Management. Kelson declined to comment, and Deutsche’s spokesman said Kelson, who headed Deutsche’s bond investments in London, is leaving the money management industry.
Europe’s second largest cable TV company, United Pan-European Communications NV, is suing Deutsche in London. UPC said it discussed with its investment banker, Deutsche, its plans to acquire German cable company Telecolumbus -- and that Deutsche then turned around and bought Telecolumbus itself. Conflict of interest, anyone?
November 8, 1999
The New York City Retirement Systems, the fourth-biggest U.S. public pension fund with $50 billion in assets, has moved to the point of interviewing replacements for Deutsche Asset Management Americas. The re-bid was triggered with Deutsche Bank lost key executives to Merrill Lynch this summer, after its takeover of Bankers Trust. NYCRS’s $50 billion is fully one quarter of the $200 billion Deutsche oversees in index funds. Barclays and State Street are in the mix. Meanwhile, joining the exodus from DB are J.J. Traynor and Caroline Cook, both to join Lehman Brothers’ global energy equity research team.
November 1, 1999
On October 26, Deutsche Bank reported declining net profits in the third quarter, and sharply rising administrative costs, associated with its takeover of Bankers Trust. Its share price fell three percent on the news.
In Germany, rumors circulate of Dresdner merging with HypoVereinsbank, or of DB making a hostile bid on Dresdner, to prevent the combination of its two closest rivals. Business Week of Nov. 1 quoted ABN Amro analyst Bryan Crossley that “a merger between HVB and Dresdner would pose a significant competitive threat to Deutsche. Breuer would probably pull out all the stops to prevent it.” The kingmaker here is Munich-based insurer Allianz, which owns stakes in all three banks.
In the U.S., the Detroit General Retirement System is replacing Deutsche Asset Management as its small-cap growth manager. BT had the gig, but Detroit General’s decided to move on. In U.S. subprime (high interest rate) lending news, GreenPoint Financial on October 25 announced it had signed a servicing agreement for subprime loans with Deutsche Bank’s Deutsche Financial Corp.. Earlier this year, Deutsche claimed to the Federal Reserve that other than Bankers Trust’s role as a “custodian” for mortgage loans, it was not involved in subprime lending. How that’s consistent with this new agreement with GreenPoint -- remains to be seen.
October 25, 1999
Hermann-Joseph Lamberti, of Deutsche Bank’s board of managing directors, spoke to reporters in New York on October 21. It was mostly puffing and “spin”: the merger’s going smashingly; Alex. Brown is excellent. Lamberti said DB has “no concern at all” about the defections, and that “there were no surprises,” including Frank Newman’s unprecedented golden parachute. Bloomberg’s first report (10/21, 14:22) quoted Lamberti that “[w]e had to show regulators the combination with Bankers Trust would be a ‘synergy merger’ that would be able to leverage mixing its businesses.” Three hours later, Bloomberg put out a “corrected” version, dropping any reference to having to show regulators anything.
Meanwhile, in Italy, DB has signed an agreement to acquire 30 percent of Banca Popolare di Cividale, a cooperative bank with 31 branches. DB’s other Italian stakes include 20 percent of Cass de Risparnio di Alexandria, and 4.5 percent of Banca Commerciale Italiana SpA, which is being bought by Banca Intesa SpA to create Italy’s biggest bank.
On the issue of Bankers Trust’s (and now DB’s) serving as trustee and custodian for mortgage-backed securities supported by predatory mortgage loans, including by Delta Funding, sued for discrimination by the N.Y. Attorney General, it’s worth noting that on October 18, New York State Banking Department Acting Superintendent Elizabeth McCaul, in a speech at the Interagency Bank Supervision Conference, said she wants to encourage bankers “to conduct necessary due diligence reviews,” with regard to subprime lenders’ MBS. BT and DB earlier this year claimed to the NYSBD and to the Fed that they had no due diligence duties whatsoever. Two cliches come to mind: “Live and learn” -- or, “Too little, too late.”
October 18, 1999
Like a broken record skipping again and again on a scratch, the exodus from Deutsche Bank continues. Investment Management Weekly of October 18 reports the abrupt departure of Fred Kuehndort and Christopher Travers, to growth equity boutique Ashland Management. DB terse confirmed that both “have been replaced with internal resources.” Also leaving in New York are Christopher Thorsheim and Joan Binstock. In London, now leaving are Luigi La Ferla, James Parsons and Richard Tull. “Colleagues say Le Ferla’s team may have been constructively dismissed after the bank failed to implement a restructuring by consultancy firm McKinsey. ‘Deutsche got the structure wrong after the merger -- it just wasn’t working,’ said one insider.” London Evening Standard, October 12, 1999. Further London defections: the entire East European investment banking team of Michael Fortier, Alexander Frasier, Jonathan Sheal, Dimitri Rozanov; Johannes Kinsky (Prague), Nikolai Kolesnikov (Moscow) and Tomas Krowicki (Warsaw).
In the New York Times of October 15, B’nai B’rith International took out a full page ad, listing 1998 sales and revenue figures for 16 of the German companies that participated in the Nazis’ slave and forced labor program. B’nai B’rith points out that while Deutsche Bank purchased BT for more than $8 billion, the $3.3 billion being offered to hundreds of thousands of slave laborers still living amounts to “pennies an hour.” So -- where DID Frank Newman go with that fine $100 million Deutsche Bank golden parachute?
October 11, 1999
On October 5, a class action lawsuit against Deutsche Bank was filed in the U.S. District Court for the Southern District of New York, alleging in detail that Deutsche Bank “conspired with the Nazis” and “concealed looted assets stolen by the Nazis and laundered the funds.” Reuters, October 5.
Meanwhile, the long-promised compensation fund, which the German government had said it wanted to have finalized by September 1, has still not been agreed to. While acquiring Bankers Trust, Deutsche Bank made reference to this fund, saying it would address the issues raised.
October 4, 1999
Last week at the IMF annual meeting in Washington, Deutsche Bank chairman Breuer put on a game face. “Without wanting to be overly hasty in assessing the integration process, I can say that at this state we have already achieved impressive results,” he said, adding that DB intends to “enhance” its presence in Mexico, Argentina and Chile. DB simultaneously announced that it is forming a private bank in Uruguay.
Meanwhile, in New York, State Supreme Court Justice Edward Lehner refused to enforce a DB/Bankers Trust non-compete agreement against four investment bankers who left DB for Credit Suisse First Boston in June. BT had gotten the employees, and the global non-compete agreements, when it acquire Alex Brown. Once DB acquire BT, the employees left, and now the court will not enforce the non-compete, calling to too broad. Since the non-compete expires on December 31, 1999, the appeal being taken is in all probability futile. Also last week, Citigroup hired away DB’s chief of U.S. private banking, Peter Scaturro. BT’s top lobbyist, Douglas Kidd, was being considered for the same post at the new “Financial Services Roundtable, but reportedly didn’t want to move down to D.C.. And a feature on DB’s custody operations reported that “insiders confirm that integration of the two custody businesses is proving much tougher than anticipated. One of the big problems, says a source, is that ‘the Bankers Trust guys haven’t yet realized that we took them over. They swaggered in thinking it was a reverse takeover, and that they’d continue to run the show from New York. That isn’t how it works. Frankfurt is in charge.’” Yeah, but -- in charge of what?
* * *
September 27, 1999
On September 26 in Washington, D.C., Deutsche Bank CEO Rolf Breuer shared the stage with New York Fed president William McDonough, at a panel discussion of the Bank for International Settlements’ Capital Adequacy Accord proposals. Breuer essentially called for less government regulation, saying that “market discipline” is faster and better. The high-powered pairing brought back the question: what role with the Federal Reserve System -- the New York Fed in particular -- play in brokering Deutsche Bank’s takeover of Bankers Trust? Numerous sources state that New York Fed senior officials bragged in late 1998, in business as well as social settings, that they had “set up” the DB’s acquisition of the weakened Bankers Trust. New York Fed president McDonough is, of course, considered a prime candidate to become Fed Chairman, if Mr. Greenspan is not re-appointed. Part of the qualification for become Fed Chairman is to be able to put deal like this together, quietly-but-not-too-quietly. For the sake of open government, the question should have been asked, and still should be...
September 20, 1999
The public relations machine is on overdrive at Deutsche Bank. Fresh off various losses -- of the account of the number two U.S. paper and lumber company, Georgia-Pacific, foreseeably of a New York City pension fund account, of Kathleen Condon, head of its index-fund business -- Deutsche Bank is making grandiose claims to any trade publication that will listen. To SDP’s Private Placement Letter, DB’s Conrad Owen blurted that “for instance, last Thursday I met with someone from a small independent oil and gas company from Texas about royalty securitization...”. DB’s mezzanine chief Gary Luciani alludes to upcoming issues: “two are emerging growth telecom... the largest is a large sponsor-related buyout.” When a company the size of DB starts having to brag about its clients, something’s wrong.
So, like a failing baseball team, DB turns to the free agent market. On September 16, DB announced with fanfare its signing of Peter Hooper “formerly at the Federal Reserve in Washington.” DB’s David Folkster-Landau gushed that Mr. Hooper will “clearly be the Street’s most experienced Fed watcher,” and that Hooper has attended FOMC meetings since 1985. See Reuters of Sept. 16. This is called the Fed’s unregulated revolving door: you can get a high paying job, explicitly because you’ve attended FOMC meetings, and can now share your “insight.”
Meanwhile, as reported on this week’s ICP Fed Reporter (and nuanced and qualified on that page, which is, as they say, incorporated herein by reference) at a September 14 meeting, Fed Chairman Greenspan revealed a stunning lack of knowledge that companies (like BT/DB) are involved in securitizing high-interest rate home equity mortgage loans. Greenspan’s admission was more than a little strange, since the Chairman supposedly closely considered before approving the order allowing DB to acquire BT. That order explicitly referred to, and rejected, arguments that BT/DB bear responsibility for these predatory mortgage loans. DB is lurchingly announcing various “help the community” projects in the United States, but has still not broken from the business of destabilizing and gouging poor neighborhoods with subprime loans. But, as DB board member Michael Dobson told Bloomberg on September 15, “the New York City account ‘wouldn’t have any significant increase for the bottom line.’” Like we said, the spin machine’s on overdrive at Deutsche Bank.
September 13, 1999
Last week, Deutsche Bank CEO Rolf Breuer cagily said that it was “possible” DB was “mis-used” as an intermediary for money laundering. On September 11, Der Spiegel magazine reported that DB has filed a report of suspicious transfers with the public prosecutor, and a Deutsche Bank spokesman later confirmed this, without giving any further details.
Meanwhile, the exodus has continued, reaching a new peak last week. After a slew of defections from its $200 billion index-fund business, on September 10, DB’s head of that business, Kathleen Condon, left as well. Condon had started the business at Bankers Trust in the 1970s, and was transferred within DB to head it again in July, after the defections. Now she too is leaving. Beyond Georgia-Pacific’s pension fund, and New York City, the Los Angeles County Employees’ Retirement Association is looking to get out. The Association’s chief investment office said Condon’s role was vital in Deutsche Bank’s attempt to keep its index business intact.
September 7, 1999
Ah, Deutsche Bank... On September 5, the German newspaper Weld am Sonntag quoted DB CEO Rolf Breuer that “[i]t could be that we were abused as an intermediate coordinating point” in the fast-developing Russian money laundering scandal. Both DB and its Bankers Trust unit have now filed “suspicious transaction” reports about Russian clients -- a little late, isn’t it? Bankers Trust had “correspondent banking” relationships with Inkombank (which “allegedly had ties to organized crime” -- USA Today, August 27, 1999).
U.S. House of Representatives Banking Committee Chairman Jim Leach (R-Iowa) had told Reuters that “while the probe is currently focusing on two New York banks, Bank of New York and Republic National Bank, there is a ‘distinct possibility’ other U.S. and international banks might have been drawn in.” Reuters, August 30, 1999.
August 30, 1999
“Size isn’t everything” -- at least in banking. While Deutsche Bank is the largest bank in the world by assets, its market capitalization is a relatively paltry L 25 billion British pounds. Even England’s Lloyds TBS has a market cap double that. Which has led Deutsche Bank to ask if German regulators would protect it from a take over by a foreign bank. The answer has apparently been: “No.” (See, e.g., London’s Daily Telegraph, August 25).
And so Deutsche Bank continues to muse about merging its retail operations with those of Dresdner Bank. Significantly (in light of the BT-Deutsche predatory lending issues discussed below on this page), Dresdner Bank AG, New York and Grand Cayman Branches are listed as lenders to (and even “issuers” of loans to) the deteriorating subprime lender ContiFinancial Corporation -- see May 28, 1999, SEC filing....
Deutsche’s business in the United States is in decline. In syndicated lending, Deutsche has lost BT’s Robert Wagner to Goldman Sachs; informed observers “wouldn’t be surprised to see [Deutsche] drop into the lower ranks of the league tables in six months.” American Banker, August 25. Former BT customers now reconsidering whether or not to continue business with Deutsche Asset Management America include, beyond the NYC Retirement Funds and Georgia Pacific, the Missouri State Employees’ Retirement System and AMR Investment Services, Inc.. Meanwhile, Japan’s Financial Supervisory Agency is conducting an unannounced investigation of the Tokyo offices of Deutsche Bank AG, Deutsche Securities Ltd., Deutsche Trust Bank Ltd., Deutsche Morgan Grenfell Trust Bank Ltd. and Deutsche Asset Management Ltd. -- including an inquiry into the role Bankers Trust played in helping Nippon Credit Bank Ltd. liquidate nonperforming loans. It’s a world of trouble -- and size isn’t everything...
August 23, 1999
Fresh off its questionable acquisition of Bankers Trust (see below), Deutsche Bank is now “inviting” other banks to join it in its Internet venture, Deutsche Bank 24, set to launch on September 1. Various reports predict that Deutsche bank will link up -- or even merge -- with Dresdner Bank, whose CEO Bernhard Walter said on August 16 that a merger with Deutsche is “not taboo anymore.” The incestuous (taboo?) nature of German high finance is breathtaking: Dresdner is stealing Deutsche’s thunder on a Frankfurt redevelopment plan; Deutsche Bank is bidding for all nine of Deutsche Telecom’s regional cable units. Dresdner’s Walter is also pontificating about acquiring another U.S. investment bank, or perhaps HypoVereinsbank. Walter may be dreaming of being treated like Frank Newman, the most recent recipient of Deutsche Bank’s embarrassing largesse--
SEC filings on August 16 revealed that Bankers Trust, in its final quarter before it was taken over by Deutsche Bank, lost $1.95 billion. BT lost $407 million in trading, and suffered steep declines in corporate finance fees and overall noninterest revenues. Makes one wonder what, exactly, Deutsche Bank bought. The SEC filings also confirmed that Deutsche Bank’s golden parachute to Frank Newman was $74 million, the taxes on that payment, an office and a car and driver through 2003, $75,000 a year for a secretary and, less quantifiably, the title of “chairman emeritus” of Bankers Trust. Deutsche Bank has also contributed $5 million to a “charitable foundation” run by Newman. Which (heavy sarcasm here) funds counseling for people injured by the predatory mortgage loans for which Deutsche Bank has indicated it will continue to serve as custodian.
Deutsche Bank is serving as custodian on the mortgage underlying a half dozen mortgage-backed securities issues by Delta Funding. On August 20, the New York State Attorney General filed “a sweeping Federal civil rights lawsuit” against Delta Funding Corporation (“Delta”), which asks the U.S. District Court for the Eastern District of New York to place Delta “into state receivership, contending that the company is unlikely to obey court orders that it alter its lending practices.” New York Times, August 21, 1999, Pg. B1. The NYS Attorney General’s lawsuit makes ever-clearer the scope of fair lending problems at Delta Funding, of which Bankers Trust was or should have been aware prior to signing on as custodian for most of Delta’s issuances, and of which Deutsche Bank is now formally on notice. What changes are forthcoming? Don’t ask Frank Newman -- ask Rolf Breuer...
August 16, 1999
A few weeks ago, we asked in this space: Where’s Eugene Ludwig? Mr. Ludwig, a long time banking lawyer, served as Clinton’s first Comptroller of the Currency, then pulled his rip cord (and went through the revolving door) for a job at Bankers Trust. Those who brought him to BT have mostly been chased out by Deutsche Bank. Now word reaches us from informed sources that Deutsche Bank has “given” Mr. Ludwig until the end of 1999 to leave. Reportedly, it’s a more humane approach that Deutsche took with other: Mr. Ludwig’s being given time to search for his next perch. But that’s the word on the street: Ludwig out by the end of the year.
Meanwhile, Deutsche Bank is losing businesses left and right in the United States. After BT’s index fund managers team defected en masse to Merrill Lynch, the paper and lumber Georgia-Pacific Group pulled its business from Deutsche Bank, and followed the managers to Merrill Lynch. Now NYC’s pension fund is putting the contract it had with BT back out for bid, and the Los Angeles County Employees’ Retirement Association is considering doing the same, both explicitly due to the loss of BT’s expertise at Deutsche Bank. Can’t tell the players without a scorecard: the defectors to Merrill including Frank Salerno, Anthony Conroy, Philip Green, Sidney Hoots, Richard Vella, Phillip Bertani, Chong-Khai Chuah, Jane Curley, Vinay Mendiratta and Jody Panchak. Also, BT’s ex-treasurer, Duncan Hennes, has hit the road to oversee administrative duties for Quantum’s Stanley Druckenmiller.
Drastically overcompensated Frank Newman may never get another job on the Street, at least not one leading a company of any size. Where Eugene Ludwig will go (back to public service if Gore or Bradley wins the White House?) remains to be seen. But the clock ticks toward the end of 1999...
August 9, 1999
Market observers now view Deutsche Bank -- on paper, the largest bank in the world, by assets -- as a take-over target. Taking into account that Deutsche Bank’s industrial holdings are worth $23 billion at current valuations, Deutsche Bank is trading at barely over book value. The average U.S. bank trades at 3.7 times book value; the average European bank trades at 2.3 times book value. Rumored acquirers? ABN Amro, Credit Suisse, or Citigroup.
Ah, just when the Bankers Trust integration was going so well... Like a broken record, the exodus continues. This past week: Bankers Trust Alex. Brown’s head of U.S. loan syndications Bob Wagner left. In London, Matthew Collins, Stephen Robertson, Andrew McCullough and Victor Miller jumped to Merrill Lynch; James Greenwood’s gone to DLJ, and Ian McCarthy’s flipped to Morgan Stanley Dean Witter.
Perhaps to erase any trace of Bankers Trust, Deutsche Bank now “re-directs” visitors to <http://www.bankerstrust.com> to one of Deutsche’s many graphics-paralyzed sites. Interestingly, Deutsche Bank still allows direct access to Bankers Trust’s sub-site of predatory mortgage backed securities, at <http://online.bankerstrust.com/invr/Investor.asp>. Want to check the return on Delta Funding’s high interest rate mortgage pools, even now that the New York State Attorney General has charged Delta with discrimination and predatory lending? You can do it, at the site listed above. Some kind of branding schizophrenia. Deutsche Bank’s perfectly happy with the money it can make in the predatory lending field -- it just wants to keep that business under the moribund BT name for a while...
August 2, 1999
Well, Deutsche Bank has confirmed it is paying Frank Newman $100 million, the most golden of parachutes. Even BT’s chief financial officer, Richard Daniels, is getting $25 million. Deutsche’s administrative costs are up 25%, and only July 28, the bank admitted that “a further 15 Bankers Trust executives it had sought to retain had defected from the bank.” The Times (London), July 29. And they call it a successful acquisition...
July 26, 1999
Deutsche Bank is preparing to announce its earnings for the first half of 1999 on July 28 in Frankfurt. Numerous analysts complain that DB has left it “utterly unclear how the restructuring expenses for Bankers Trust” will be booked -- something the Fed should have delved into as part of its review of the merger, and future financial strength. But the Fed apparently let DB set up a number of shell (oh, “intermediate holding”) companies, which won’t be required to comply with U.S. capital adequacy guidelines. Perhaps DB’s earnings report will clarify how the shells are stacked on top of each other...
July 19, 1999
The exodus, the litigation, and the public relations spin -- all continue. In order: on July 14, Glen Lewy, formerly co-head of BT Wolfensohn, left Deutsche Bank. The other co-head, Jeff Goldstein, had already left. Analysts opine that “the executive retention fund is not working out,” and that “it’s still not clear what they really bought with BT, with all the defections” (Business Week, July 19, see below).
The same week, Russia’s Gazprombank accused Bankers Trust of defaulting on its obligations on a forward contact. To avoid complying with a decision by a Russian arbitration court, BT simply declared that its Russian subsidiary, Bankers Trust Kapital LLS, was bankrupt. Apparently the Federal Reserve’s principal of holding companies as “sources of strength” to their subsidiary banks -- only applies to U.S. banks.
Meanwhile, the Federal Reserve has finally provided ICP with heavily-redacted copies of its staff memos leading up to the Fed’s approval of Deutsche Bank - BT, under the Freedom of Information Act. The Fed has withheld all meaningful information about Deutsche Bank’s request that its intermediary holding company (the goal of which, even the Fed’s memo acknowledges, is “to enable Applicant to minimize U.S. taxation”) not be subject to otherwise-applicable capital adequacy guidelines. The Fed’s memo indicates that its acceptance of these games is more widespread than previously known: “HSBC and ABN AMRO Holdings, among others, have non-operating intermediate holding companies domiciled in foreign tax havens that are not subject to the Board’s capital rules.” In those cases, it is the off-shore location of the holding companies that take them out of the Fed’s capital guidelines. Deutsche Bank, however, wants the “best” of both world: to domicile the holding company in the U.S., but still be exempt from the Fed’s capital adequacy guidelines. On this key issue, the Fed’s approval Order was opaque, and now the Fed has withheld its staff discussion of the issue. And when things blow up -- the redactions are removed? Here to transparency...
July 12, 1999: This week's mystery: where’s Eugene Ludwig? The ex-Comptroller of the Currency, who immediately after leaving that post went to work for Bankers Trust, has been little heard from since Deutsche Bank’s acquisition of BT. Ex-Deputy Treasury Secretary Frank Newman has ejected, using his golden parachute. BT CFO Richard Daniel is gone, and risk management chief Elizabeth Rumi is leaving in September. “We wanted some of the staff to go,” DB’s Rolf Breuer told Bloomberg on July 8. But where’s Eugene Ludwig? In March, he gave a speech at the Bank Securities Association’s convention in Palm Springs. In May, Senator Richard Shelby beat the drum for a hearing about, among other things, Ludwig’s actions in connection with Far East National Bank and its previous owner, Henry H. Hwang; Ludwig granted an interview, from BT, denying any wrongdoing. Africa News of June 11 quoted Ambassador to Tanzania Charles Stith (whose Organization for a New Equality used to give Ludwig awards for community service) as saying that Ludwig will arrange meetings between Tanzania’s president and the heads of financial institutions in New York this September. Perhaps DB, now the world’s largest bank by assets, needs or wants this type of global public relations...
In related revolving-door news: Konrad Alt, who was Eugene Ludwig’s troubleshooter at the OCC when Ludwig was Comptroller, on July 6 was named government affairs official for Providian Financial, the subprime credit card issuer that has been the subject of scandal and numerous lawsuits. Providian announced this hiring on P.R. Newswire, apparently to show investors that it is trying to “get out in front” of its troubles.
One hopes that, beyond the spin, Konrad Alt moves to change Providian’s practices -- in a way that Eugene Ludwig apparently has not changed Bankers Trust’s and now Deutsche Bank's ties with predatory subprime mortgage lenders. Until next time, for or with more information, contact us.
July 6, 1999
Earlier in 1999, and as summarized below on this page, ICP raised in detail to the Federal Reserve, in opposition to Deutsche Bank’s application to acquire Banker Trust, BT’s involvement in predatory mortgage lending, particularly with Delta Funding, a subprime lender based in New York. The Fed (and Deutsche Bank), after supposedly “closely considering” the question, refused to act.
On July 1, the Office of Thrift Supervision issued a press release announcing that it had approved Lehman Brothers’ “emergency” application to acquire Delaware Savings Bank. The Inner City Public Interest Law Center (and the Delaware Community Reinvestment Action Council) had commented to the OTS about Lehman’s involvement in predatory mortgage lending, particularly as an underwriter for Delta Funding, a subprime lending against which ICP has been commenting since November 1998, and which, in June 1999, settled discrimination charges with the NYS Attorney General.
The OTS stated that Lehman “must fulfill the local and national lending commitments contained in its CRA compliance plan,” and that it had considered “the Applications as supplemented by representations by the Applicants (a copy of which is attached hereto)...”. Attached to the OTS’ approval order was a letter, also dated June 30, from Lehman Brothers to the OTS (reproduced in ICP's Delaware Beat report).
July 4, 1999 -- So when an executive mis-manages a bank, here in the land of the free, what happens? Well, if you’re Frank Newman, who failed to save Bankers Trust, and sold it to Deutsche Bank for 50% below it previous stock price high -- you get a $70 million golden parachute. Then you allude to “other business opportunities,” and “decline to comment on [your] compensation.” Reuters, June 29. Meanwhile, the Wall Street Journal reports that Deutsche Bank is under investigation for helping its private banking clients evade taxes. (WSJ Europe, July 1). Given that Deutsche Bank asked the Federal Reserve to help it evade taxes, by setting up a U.S. holding company that would not be subject to capital adequacy rules, this shouldn’t come as much of a surprise...
June 28, 1999 -- The New York State Attorney General on June 22 took action on a predatory mortgage lending issue that the Federal Reserve refused to touch in connection with Deutsche Bank’s application to acquire Bankers Trust. On June 22, the A.G. announced that Delta Funding, a high interest rate lender that Bankers Trust enabled and did foreclosures for, had settled racial discrimination in lending charges. The Fed was directly confronted with BT’s involvement with Delta during its consideration of DB’s application, but refused to act. Now (this from BNA’s Banking Daily of June 24, 1999):
WASHINGTON (BNA) -- Delta Funding, a Woodbury, N.Y., mortgage lender, has settled claims of biased and predatory lending by agreeing to pay $ 6 million to alleged victims... Spitzer and other officials charged that Delta made over 1,000 "high interest, illegal loans to low-income, minority residents in Brooklyn and Queens over the past three years." ... Delta Funding could not be reached for comment. The company's telephone line was busy throughout June 23.... Delta Funding was in the news earlier this year in connection with Deutsche Bank's acquisition of Bankers Trust Co. The Bronx-based Inner City Press/Community on the Move urged the Federal Reserve Board to turn down the deal, arguing among other points that Bankers Trust had business relationships with Delta, which Inner City Press at that time accused of "predatory lending" practices (72 BBR 292, 2/15/99).
So, will the Fed take action, now that the NYS Attorney General has? The answer appears to be “probably not,” or, “not anytime soon.” The wheels of justice at the Fed, such as they are, turn absurdly slowly. For example, the Fed is only now (June 29) holding a hearing on Bankers Trust’s VP Guillaume Henri Fonkenell’s bogus sales of derivatives to Indonesian companies and Proctor & Gamble in 1994. That’s five years ago. Justice at the Fed is not swift, and is far from certain.
Deutsche Bank’s acquisition of Bankers Trust, brokered and approved by the Federal Reserve Board, is degenerating into chaos. BT’s CEO, Frank Newman, met with DB’s Rolf Breuer on June 24, asking when he was going to be appointed to DB’s board of directors. “Never,” was apparently the answer. Financial Times of June 25, also reporting that DB has decided to curtail Frank’s wife Lizabeth’s use of DB corporate jets and chauffeur-driven cars. Now Der Spiegel reports that DB officials plan to contest Newman’s $100 million “walk away” fee, calling it “an insane sum.” But who at DB reviewed Newman’s compensation package, before agreeing to the deal? And what has Deutsche Bank bought, exactly?
June 21, 1999 -- Deutche Bank, fresh off taking over Bankers Trust (which it says will take two years to “integrate”), is now requiring employees to attend “psychological training classes to rid them of the ‘frightful stereotypes’ of each other that were discovered in recent polls of the workers,” according to Der Spiegel magazine. “Deutsche Bank Brings Psychological Bootcamps to U.S"....
On June 2, oral arguments were held in the U.S. Court of Appeals for the Second Circuit on ICP's lawsuit on the Fed's creative use of this "non-agency record" loophole to FOIA. Results of that case, as well as of ICP's outstanding FOIA requests to the Federal Reserve Board, will be reproted in this space. As Senator Gramm and Rep. McCollum are saying as to community groups and CRA, Inner City Press says as to the Federal Reserve: Sunshine!
June 4, 1999
ICP has filed a timely request for reconsideration of the Federal Reserve Board’s May 20 approval of Deutsche Bank’s application to acquire Bankers Trust. When Fed staffers telephoned ICP on May 20 stating that the application had been approved, they stated that ICP had fifteen days to request reconsideration. This was confirmed by the Fed’s cover letter to ICP, and by the Fed’s rules, at 12 CFR 262.3(k). How the Fed could legitimately consider a detailed request for reconsideration (ICP’s is 12 pages, with twenty pages of exhibits) on the day a bank claims to plan to consummate the approval -- is unknown.
ICP’s request for reconsideration raises, as the Fed demands, “new facts that for good cause shown were not previously presented to the Board.” Primary among these are the revelation reported by Tim O’Brien in the New York Times of May 30, that BT’s history of fraud with unclaimed funds is much more extensive than that to which BT pled guilty in federal court in March. ICP asks the Fed: either these are “new facts” -- or the Fed knew about them all the time, casting in a different light the Fed’s approval order’s statement, at note 16, that at n. 16, that it “considered” this plea, but took “particular note of BT Corp’s cooperation with regulatory authorities in identifying and remedying fraudulent activities...”. Emphasis added.
This Board statement, this supposed “fact” that the Board relied on, is squarely contradicted by relevant facts that have only become known after the Board’s May 20 approval. For the record, here is a portion of the New York Times’ article of May 30 (ten days after the approval), with emphases added:
PORING over records at the Bankers Trust Corporation in early 1994, New York State auditors discovered something strange: Millions of dollars in unclaimed customer funds had disappeared.
For two years, the auditors' repeated requests for an explanation were ignored. But they pressed ahead, and what they found left them aghast. The bank, one of the nation's largest, was using the money to inflate its sagging profits.
"They were moving it back and forth between so many other parts of the bank that they lost track of the money," said one auditor, who spoke only on condition that his name was not revealed. "I'd never seen anything on this scale before."
Bankers Trust, an investment and commercial bank that is the nation's eighth-largest, finally faced the music two months ago. It pleaded guilty in March to criminal charges of illegally diverting $19.1 million in cash and other assets that the law requires to be turned over to states.
But a closer look at the scheme reveals that it goes well beyond the transgressions the bank owned up to.
Etc. Emphasis added.
It is now clear that BT did NOT cooperate with regulatory authorities. It denied having documents; then senior officials were finally called, they said “we were just about to call you.” The problems are not over -- see, e.g., Georgia’s investigation into BT’s actions SINCE 1996. In fact, it might appear that the FRS only got involved in the case (much too late) in order to bring about a purport closure (guilty plea to some but by no means all of the outstanding issues) in order to create ground cover to approve this combination which, like the installation of Frank Newman at BT by the FRBNY, it appears that the FRS itself “brokered.”
If the Board claims that these facts reported after the Order are NOT new to it -- then the Order, at n. 16 and elsewhere, is troublingly misleading if not worse.
ICP also puts into the record before the Fed an internal BT memorandum, about “market segmentation,” referring to various markets as “milk, exit and ignore,” and other classically rogue internal instructions. ICP contrasts the combination the Fed on May 20 approved with Fed Governor Meyer’s June 3 statement that “results of recent Fed investigations into how credit models were used by big banks were ‘disappointing’... ‘We now give increased attention to roughly 20 U.S.-owned and other 10 foreign-owned banks,’ Meyer said... the Fed has begun ‘sharpening its supervisory focus’ over their increasingly complex operations to make sure the banking system is not placed at risk, Meyer said.” Reuters news wire of June 3, 1999.
ICP also critiques the Fed’s refusal to act on the predatory subprime lending issues that continue to swirl around Bankers Trust, and ICP has now requested from the Fed under the Freedom of Information Act documents reflecting when the Fed knew about BT’s unclaimed funds fraud, dealings with subprime lenders, and other documents.
But the Fed ARRANGED this merger, so whether it will take legitimate action on this request for reconsideration is questionable. This will be updated...
June 1, 1999
Recent revelations about the growing scope of Bankers Trust’s misuse of unclaimed client funds shed light on Deutsche Bank’s acquisition of BT, and on the laxity of state and federal bank regulation of BT.
According to the New York Times’ Tim O’Brien (May 30, Sec. 1, Pg. 1), “a closer look at the scheme reveals that it goes well beyond the transgressions the bank owned up to.” In March, BT pled guilty to having diverted $19.1 million from unclaimed funds to prop up profitability at other units. At the time, observers noted that the guilty plea could have put BT out of business, if it weren’t already in the process of being acquired by Deutsche Bank.
But (at least) two things are worth noting in the new revelations. First, it was auditors from the NYS Comptroller’s Office who uncovered BT’s diversions of funds. The NYS Comptroller’s office noticed that BT’s unclaimed funds account dropped from $.10.2 million in 1993 to only $3.9 million in 1994, and began requesting documents (that BT refused to provide, claiming they had been transferred to a warehouse in Nashville, TN).
Note that it was not the primarily regulators of BT, the Federal Reserve and the NYS Banking Department, who discovered this fraud. One could conclude that either the NYS Comptroller’s office, with its limited jurisdiction over BT, is more effective than the Fed or NYSBD -- or that, where the Fed and/or NYSBD find problems, they sweep them under the rug so they never become public knowledge.
O’Brien reports that in October 1998, the Fed contacted the NYS Comptroller’s Office and asked for the documents they’d assembled. A month later, the Federal Reserve and other federal agencies took control of the investigation from the NYS Comptroller’s office (leading to the March 1999 guilty plea to what is now seen as only a small part of the overall fraud).
That the Federal Reserve played a role in brokering Deutsche Bank’s take over of BT in November 1998 is clear -- New York Fed officials have bragged as much (see below). The new revelations as to timing could lead one to conclude that when the Fed became aware of the scope of the NYS Comptroller’s investigation, and what it was turning up, it ordered BT to find a merger partner (or even suggested Deutsche as a partner), and then took the investigation out of the hands of the (uncontrollable) NYS Comptroller. BT’s guilty plea to only a part of the scandal provided enough closure for the Fed to approve Deutsche Bank’s application to acquire BT. And now the whole problems can be swept under the rug, under new management. Yes, Georgia and Illinois are now claiming that BT moved money from unclaimed funds accounts for those states -- but the scandal as a whole will devolve to the state level, and be of mostly historical relevance. Frank Newman of BT, paid $50 million by Deutsche, is not even going to head up Deutsche’s U.S. operations. The U.S. bank regulators allowed BT to run rough shod over the laws, gave it a grace period for hiring ex-regulators, and then, when scandals began to be uncovered by authorities who the Fed could not control, the Fed urged a take over, and itself took over the investigation. Another fine chapter in the murky world of bank “regulation.”
May 26, 1999
Inner City Press has learned that the Federal Reserve Board withheld documents about its communications with Deutsche Bank and Bankers Trust -- until after the Board had voted to approve this merger. Then, May 19, the Fed mailed ICP “four memoranda that summarize correspondence between Federal Reserve System staff and representatives of Deutsche Bank.” The memos state that the FRS “staff spoke with representatives of Deutsche Bank to discuss application related issues. The representatives acknowledged that the Board’s ex parte rules were in effect.”
But the conversation took place on May 6, wasn’t written up until May 12, and wasn’t mailed to ICP until after the Board approved the application, on May 19. The Board’s ex parte rules provide that:
“All written correspondence from the System to either party, or to the System from either party, should also be sent to the other party... After the receipt of a protest, all Federal Reserve System personnel should refrain from discussing issues raised by the protest directly with Applicant or Protestant without first notifying the other, so that all parties may have the opportunity to participate in the discussion.”
The Fed, while sanctimoniously referring to its ex parte rules in each memo, blatantly violated by the letter and purpose of its ex parte rules. First, the communications were not written (in which case, sending to ICP, if timely, would have complied) -- they are oral. Oral ex parte communications are prohibited by the Fed’s rules, and this is not cured by mailing ICP a summary, especially when, without explanation, the summary of a conversation two weeks before the Fed’s vote is not mailed to the Protestant until after the vote.
How many lawyers can balance on the head of a pin? How many ways can the Fed dress up violations of open government rules to look like compliance? How can one of the most powerful government agencies in the world violate the law, conspire with the industry it is supposed to be regulating, and still be lauded by purported libertarians like Senator Gramm (R-TX)? A rising stock market and low inflation? Kid gloves treatment for mega-companies which in turn fill the campaign coffers of those who are supposed to oversee the agency?
The New York Fed’s Bill McDonough, speaking in New York to the Citizens Housing and Planning Council on May 19, said, “We don’t serve economic forecasters, we serve the American people.” In one way, maybe; in other ways, as to the Freedom of Information Act, fair lending laws and the CRA, not at all. [Click here to view ICP’s most recent Federal Reserve Reporter, for more FOIA follies].
May 21, 1999
After close of business on May 20, the Federal Reserve announced it that its Governors had unanimously approved Deutsche Bank’s application to acquire Bankers Trust. A Fed lawyer called Inner City Press/Community on the Move, which had commented (and submitted evidence, particularly about BT’s links with subprime lenders including Delta Funding), and read a script: “You have 15 days to request reconsideration.... A copy of the Order will be mailed to you, along with a copy of the Board’s Rules...”. ICP managed to get a faxed copy of the Order, and provides this summary analysis at deadline. A more detailed analysis of the situation will follow next week.
On the issue of Bankers Trust’s involvement with high interest rate mortgage lenders which are subject to numerous consumer complaints and lawsuits, the Fed evaded its duties under the fair lending laws, including the Equal Credit Opportunity Act, for which Congress charged the Fed implementing regulations. The Fed’s Order says that it referred the issues to other agencies, which deal with “nonbanking companies’” fair lending compliance (see Fed statement, below). But Bankers Trust is a bank holding company, and Bankers Trust of California, N.A. is a bank. The Fed is becoming more and more remiss in enforcing the fair lending laws -- while lobbying in Congress to have its jurisdiction over banks and their affiliates expanded.
Also worth noting, in terms of the seriousness (or lack thereof) of the Fed’s enforcement of the Bank Holding Company Act, is footnote 45 of the Order, in which the Fed grants a extension to Deutsche Bank of Bankers Trust’s duty to “conform” the activities of Alex Brown. When BT bought Alex Brown, it acquired a number of activities not permissible under the Bank Holding Company Act. Fine, said the Fed, you have two years to conform them. BT hasn’t done it -- fine, says the Fed, giving Deutsche Bank a one year extension, “[b]ased on... the additional restructuring options that would be made available to BT Corp by the Deutsche Bank acquisition...”. That is, Deutsche Bank can find ways to shift the operations around so they never have to be “conformed.”
This is particularly significant because, when the Fed approved the impermissible merger of Citicorp and Travelers, it gave Citigroup the (initial) maximum time to “conform” -- two years. But it seems clear that the Fed will grant repeated extensions of these conformance times, at least to certain applicants. The Fed apparently doesn’t like the laws that it is currently charged with enforcing -- and so it just doesn’t enforce them. There’s a separate of powers question in here somewhere, but full analysis will have to wait until next week.
On the Holocaust issues -- for example, the evidence that Deutsche Bank funded the Auschwitz concentration camp, and has still not actually participated in the much-discussed Foundation Initiative (the Fed refers to DB’s “forthcoming... efforts”) -- the Fed recites the State Department’s (free trade / globalization-based) arguments that these issues should not be considered by U.S. regulators, cites every new-found supporter of Deutsche Bank it could find, and then notes that its jurisdiction is limited anyway.
Of Deutsche Bank's unprecedented request that its U.S. holding company not have to comply with applicable capital adequacy rules, the Order appears to say nothing. Does this mean that Deutsche's proposal was rejected? Or that it was approved, by silence?
The Federal Reserve Board “reviewed” this proposal from January until May 20 -- longer than the 60-days the Fed usually spends. The Order, however, either reveals the superficiality of the Fed’s inquiry, or conceals what inquiry the Fed actually made.
ICP is continuing to pursue the issue of white-shoe investment banks profiting from but taking no responsibility for predatory, high interest rate mortgages. Currently, ICP is raising these issues in even greater detail to the Office of Thrift Supervision, as to Lehman Brothers, which (contrary to the Fed’s presentation of BT, below) is not a “mere custodian,” but rather is an active underwriter of Delta Funding’s mortgage-backed securities. The Bankers Trust (or would that be, “Deutsche Bank-Alex Brown,” since BT’s name is being jettisoned) issue will not go away, and will be addressed...
Here’s the Fed’s language from its Order.
....commenters maintained that BT Corp has engaged in discriminatory lending practices as a result of its relationship to certain subprime lenders including in particular Delta [Funding Corp.]. BT Corp provides trust and custodial services to Delta and other subprime lenders in connection with the securitization of home loans made by such lenders. BT Corp has indicated that (I) neither BT Corp nor any of its subsidiaries has had any involvement in the origination of mortgage loans by Delta; and (ii) BT Corp has no business relationship with Delta other than acting as custodian and trustee in the context of Delta’s securitizations. The Board has considered these comments in light of BT Corp’s limited role solely as trustee and custodian for the securitization trusts of subprime lenders, and its lack of involvement in originating the underlying loans that are securitized and in developing and monitoring the criteria governing the type of loans that may be securitized. The Board has forwarded a copy of all comments on Delta to the Departments of Justice and Housing and Urban Development and to the Federal Trade Commission, which have responsibility for reviewing compliance with the fair lending laws by nonbanking companies.
Note again that Bankers Trust is a bank holding company, and that Bankers Trust Company of California, N.A. is a bank. For shame....
May 19, 1999 -- Late Tuesday, the Fed announced that it has placed Deutsche Bank’s application to acquire Bankers Trust on its agenda for consideration Thursday, May 20, at 3 p.m.. According to the documents provide to ICP under its ongoing Freedom of Information Act request, Deutsche Bank is still requesting that the Fed bend various rules for it, including by allow DB to set up a U.S. holding company which would be exempted from otherwise applicable capital adequacy guidelines.
The predatory subprime mortgage lending activities in which Bankers Trust is involved, under Pooling Agreements, including with Delta Funding Corp. (see below) are fully documented in the record before the Fed. Staff memoranda and a draft Order are circulated to the Governors two or more days before the meeting -- so the decision is already made, barring any (too rare) questions by the Governors of the staff’s recommendation.
May 17, 1999 -- The Federal Reserve Board has still not placed Deutsche Bank’s proposal to acquire Bankers Trust on its agenda. AFX News of May 7 quoted a Fed spokesman that the Board “is expected to rule on the merger... in two months.” The quote is strange, since (1) the Fed almost invariably issues a “no comment” on when a vote is expected, and (2) the application has been pending at the Fed since January.
Meanwhile, on May 16, Agence France-Press, citing an advance extract of a story to appear in the Handelsblatt financial newspaper, reported that Deutsche will soon announce a takeover of Italy’s third largest bank, UniCredito Italiano SpA. Deutsche Bank quickly denied the report. If Deutsche does acquire UniCredito, it might require that further financial information be provided to the Fed. Before the Fed are the Bankers Trust / predatory lending and Deutsche Bank evasion of law issues described below, as well as the much (mis-) reported Holocaust issues.
ICP has confirmed that NYC Comptroller Hevesi’s May 5 announcement he no longer opposes the deal had NOTHING TO DO with the NYS Banking Board’s May 6 approval (after long discussion of BT predatory lending issues). The item was already on the NYS Banking Board’s agenda of May 6 before Mr. Hevesi’s announcement. A cynic might read more into Mr. Hevesi’s timing; ICP’s focus, however, is on Bankers Trust and Deutsche Bank, with enough sins between them to scuttle the deal. “Approval = Consent;” these issues should be cleaned up before the Fed even votes.
May 10, 1999
Deutsche Bank still does not have Federal Reserve Board approval for its applications to acquire Bankers Trust. Nor has the FRB given notice of when it will consider Deutsche’s application.
On May 6, however, the New York State Banking Board, whose members are appointed by New York’s Republican Governor George Pataki, approved Deutsche’s applications. Three of the Banking Board’s seventeen members had to recuse themselves; of the remainder, only two even asked any questions about the proposal, after long staff presentations about Bankers Trust’s involvement in subprime lending, and Deutsche Bank’s involvement in the Holocaust, including making loans for the construction of the Auschwitz concentration camp.
On the issue of Bankers Trust’s ongoing involvement in predatory high interest rate mortgage lending, disproportionately to minorities and the elderly, the NYS Banking Department staff’s presentation to the Banking Board was shamefully one-sided. The presentation, a full copy of which ICP is requesting under the NYS Freedom of Information Law, claimed that while Bankers Trust has “Pooling Agreements” with Delta Funding and other subprime lending, what Bankers Trust does is “not really pooling.” This Orwellian reinterpretation of language became necessary because the federal Fair Housing Act applies to pooling, and Bankers Trust confirmed that it has no fair lending programs in place for its business with subprime lenders. The regulatory solution? “Pooling -- is not pooling, in this case.”
One of the Banking Board members said that the Department’s presentation, including a written presentation in a slim black binder that ICP is requesting under FOIL, did not sufficiently explain Bankers Trust’s role with subprime lenders, particularly Delta Funding. The Department staff responded that Bankers Trust “really has no responsibility,” that it only holds loan documents for the lender and those who buy securities based on these high-interest rate loans. That is not true -- Bankers Trust in fact forecloses on hundreds of homeowners a year, and has a responsibility to take action when it becomes aware that any of the underlying loans do no comply with federal, state or local law. Which, in the case of Delta Funding, should have been clear to Bankers Trust. Delta and BT are together names as defendants in a number of consumer protection lawsuits; Delta was subject to a Settlement Agreement with the NYSBD in 1996, for having illegally charged “processing fees” not allowed under New York law. NYSBD staff cursorily summarized ICP’s question about whether the NYSBD have ever told Bankers Trust, which it regulates, about this Settlement Agreement with Delta Funding, with which Bankers Trust does business -- but never answered the question.
May 3, 1999
While Deutsche Bank continues to state that it will consummate its acquisition of Bankers Trust "in May" (see, e.g., Reuters of April 30, 1999), the Federal Reserve Board has asked more questions about Deutsche Bank's request that its U.S. bank holding company not be subject to U.S. law, specifically capital adequacy guidelines; ICP has obtained and submitted to the Fed and New York State Banking Department a copy of a 1999 class action lawsuit against Bankers Trust's favorite high interest rate mortgage lender, Delta Funding. Delta was required to enter into a Settlement Agreement with the NYSBD in 1996, for charging illegal "applications processing" fees, but allegedly did not inform its customers (or Bankers Trust?) of this Settlement Agreement. Nevertheless the NYSBD may rule on the merger application on May 6. The Fed has still not scheduled a vote; the banks would have to wait at least 15 days after any such vote...
Meanwhile, FRB Governor Rivlin recently denied expedited processing for ICP’s Freedom of Information Act request for records reflecting the Fed’s communications with Deutsche Bank or Bankers Trust, , including a reported March 22 meeting between Deutsche Bank’s CEO and Federal Reserve Bank of New York President (and FOMC member) William McDonough. Governor Rivlin denied expedited (ten business day) processing of ICP’s FOIA request because the Internet as a mode of disseminating information still seems to be a mystery to the FRB. How else to explain FRB Vice Chairman Alice Rivlin’s April 22, 1999 FOIA appeal denial, refusing expedited processing of FOIA request because “there is a substantial question... about whether making information available on the Internet constitutes dissemination of such information within the meaning of the standard” of the Electronic FOIA Amendments of 1996?
“Internet publication is not dissemination” -- it is just this sort of anachronistic position that the E-FOIA Amendments were enacted to counteract. In 1996, federal agencies were still arguing that electronic records were not “records within the meaning of the standard” of FOIA. One definition (“records”) was explicitly modernized in the E-FOIA amendments; the Fed, however, contests the modernization of any other definition. Makes you wonder how they set interest rates... (A FOIA request is in for current Federal Open Markets Committee transcripts, so stay tuned).
By the way, the volume of information disseminated over the Internet currently doubles every 100 days; and currently, 20% of U.S. adults get news over the Internet. While one assumes that the FRB Governors are in this 20%, that remains to be confirmed -- by a FOIA request, perhaps...
Since it would be illegitimate for the Fed to rule on the BT-DB merger application before releasing this information, the Fed’s denial of expedited processing of the FOIA request is more than a little strange.
April 19, 1999
The Federal Reserve has made another inquiry to Bankers Trust and Deutsche Bank about BT’s involvement in subprime lending -- and the banks’ April 16 response contradicts their April 2 response to ICP’s protest.
On April 2, the banks claimed that, although BT has no fair lending compliance programs in place for its activities with subprime lenders, it addresses this issue by “requiring representations” from the subprime lenders that they are complying with law.
On April 12, the Fed asked about BT’s role in drafting or negotiating these representations, and other provisions of BT’s Pooling Agreements with Delta Funding and other subprime lenders. As set forth below, on April 16 the banks claimed that BT had no role in drafting or negotiating the representations. So which is it? Does BT “require representations” of legal compliance from Delta? Or does it have “no role” in these representations? Below, ICP presents the banks’ submissions, verbatim; you decide (as the Fed and New York Banking Department, to which ICP has also submitted this chain of correspondence, will have to decide).
The banks’ April 16 letter to the Fed, copied to ICP, states:
This letter is in response to an additional question raised by the staff of the [FRB] in a telephone call on April 12, 1999...
Did BTC have a role in drafting or negotiation the language of the representations that appear in Section 2.04(15), or of the subsequent funding parameters that appear in Exhibit Q, of the Delta Funding Corporation Pooling and Services Agreement... and does BTC have such a drafting or negotiating role in similar securitization transactions with respect to the language of those representations and/or subsequent funding parameters? If BTC does not have such a drafting or negotiating role, who did/does draft and/or negotiate the language of the representations that appears in Section 2.04(15) and of the subsequent funding parameters that appears in Exhibit Q of the Pooling and Services Agreement, and that also appears in similar securitization transactions?
[ICP note: the Pooling Agreement language the Fed is asking about is set forth at the bottom of this April 19 report. Immediately below is the full text of the banks' April 16 answer to the Fed's question].
To the best of its knowledge, BTC did not have a role in drafting or negotiating the language of the representations in Section 2.04(15) or of Exhibit Q of the Delta Pooling and Servicing Agreement previously provided to Board Staff, and BTC normally does not have a drafting or negotiating role with respect to similar provisions in similar securitization transactions. The trustee has little or no practical leverage to negotiate changes in any provision in a pooling and servicing agreement other than those which relate specifically to its own rights and obligations. The corporate trust business is so competitive and the participants therein are so cost-conscious that, as a practical matter, a trustee would be unlikely to prevail in any persistent attempt to change the provisions of the documentation related to other parties or to the economics of the transaction in a way that was not agreeable to the originator and the underwriter.
According to BTC, the documentation for corporate trust transactions such as the Delta Pooling and Servicing Agreement normally is drafted by legal counsel chosen by the sponsor of the transaction (often the originator of the loans or the underwriter, but never the trustee) from among the firms active in the relevant market and normal is based on standard models that have been used in similar transactions in the past. To the best of BTC’s knowledge, this was how the Delta Pooling and Servicing Agreement was produced. Although the role of the trustee in a transaction is largely passive, the trustee is a party to the documentation and therefore normally is entitled to make comments on drafts. Nevertheless, as indicated above, it is generally expected that those comments will relate only to provision which directly affect the trustee and not to provisions that relate to the substantive economic terms and conditions of the transaction being structured for investors by the underwriter and the loan originator.
Since receiving the banks’ April 16 submission to the Fed, ICP has put in the following arguments to the Fed and New York Banking Department:
In the Applicants’ response to ICP’s comments, dated April 2, 1999, at 2-3, the Applicants stated that “BTC does, of course, have policies and procedures in place to promote compliance of applicable fair lending laws and regulations... BTC also addresses these issues in that context by requiring representations from the subprime lender securitizing the loans that all requirements of applicable federal, state and local law (including those relating to truth in lending, real estate settlement procedures, consumer credit protection and equal credit opportunity) have been met.” Emphasis added.
The Applicants’ position is untenable. First, the Applicants tried to BTC’s lack of fair lending compliance programs by stating the BTC “requir[es] representations from the subprime lender” that it has complied with laws (the list of which does not include the Fair Housing Act).
Then, when asked by Board staff whether BTC played a role in drafting or negotiating the sub-section of the Pooling Agreement in which Delta represents its compliance with law (and commits to make documentation thereof immediately available to BTC), the Applicants respond that “[t]o the best of its knowledge, BTC did not have a role in drafting or negotiating the language of the representations...”. April 16 Submission at 1.
If BTC now claim it “did not have a role in drafting or negotiating the language of the representations,” how is this consistent with the Applicants’ earlier defense that BTC “requir[es]” these representations?
In any event, the claim that BTC “[t]o the best of its knowledge.. did not have a role in drafting or negotiating the language of the representations” is contradicted in the next paragraph of the April 16 Submission, which acknowledges that since BTC “is a party to the documentation,” it “is entitled to make comments on drafts.” That is certainly “a role.” The Applicants’ continued hair-splitting cannot be accepted.
There is a dispute of material fact on these issues, reflected inter alia by the Applicants’ vituperations, and by their insistence, now, on prefacing each response with “to the best of [BTC’s] knowledge.” How could BTC not know what its role in this transaction with Delta was? To resolve this dispute of fact, which remains disputed in large part due to the Applicants’ hair-splitting word games, contradictions and qualifications, the FRB should conduct a factual inquiry into how this Pooling Agreement between BTC and Delta was drafted and negotiated. This inquiry, including depositions under oath, should be conducted forthwith by the FRB.
That’s how it stands, at present, at the Fed and NYSBD.
April 14, 1999
Bankers Trust has now denied that it is stopping doing business with Delta Funding, the most currently-controversial of its subprime lending business partners. The American Banker newspaper of April 13 quoted a BT spokesman that BT will “‘continue to serve as trustee on Delta’s existing securities’ and would consider other deals on a case-by-case basis.”
And what would be Bankers Trust’s criteria for considering these and other subprime deals? Bankers Trust has already confirmed that it has no fair lending or consumer compliance programs in place for this business.
ICP has now submitted further documentation concerning Delta (and Bankers Trust) to the Federal Reserve Board, including exhibits concerning a Delta loan to Oscar and Dorothy Jernegons. For this Delta loan, the closing statement shows that, out of the $101,250 loan, Mr. Jernegons was charged $7,151 in origination fees by Delta, $8,100 in fees to Dunewood Funding, and $6,000 to a Mr. Stanley R. Stern (to whom Mr. Jernegons has stated he was not previously indebted). Mr. Jernegons also claims that a Mr. Archer wrote down a rental income figure which had no basis in fact in order to show financial capacity, for qualifications purposes. Mr. Jernegons states that he never saw these loan documents despite numerous requests. This exemplifies the type of practices that BT was or should have been aware of; note that even now, with the issues raised, BT asserts its intent to continue to do business, including pooling business, with Delta, and confirms that it has no fair lending compliance programs for this line of its business.
ICP has also submitted to the FRB correspondence regarding a loan involving Delta and a Mr. John Gizze of Royce Equities. Mr. Gizze has since had his mortgage license suspended by the New York State Banking Department....
April 12, 1999
The New York State Banking Board, whose approval Deutsche Bank and Bankers Trust would need, did not vote on the merger proposal at the monthly meeting of April 8. The earliest the Board could now vote would be May 6, after the BT shareholders’ special meeting on April 22. The N.Y. Banking Department has given assurances it will be looking closely at the BT predatory lending issues; this remains to be seen.
After the Banking Board’s April 8 meeting, BT Vice Chairman George Vojta stated that BT is quite aware of the subprime issues that have been raised. Mr. Vojta explained that Bankers Trust had to “start” with a legalistic defense, but that those interested should “stay tuned.” This, too, remains to be seen.
April 7, 1999
As both the Federal Reserve and the New York Banking Department move toward decision on the Deutsche Bank - Bankers Trust applications, the split between Bankers Trust’s formal and informal positions on subprime lending, and Delta Funding, becomes more pronounced. On April 2, the Applicants’ outside law firm, White & Case, faxed ICP a copy of their response, which stated:
The objections that ICP raised to the proposed acquisition based on alleged illegal involvement by BTC in the subprime mortgage lending business are without merit... [T]o the extent that BTC is currently involved in securitizations related to mortgage loans originated by Delta Funding Corporation (“Delta”), it is not even factually certain that Delta has engaged in illegal lending or foreclosure practices with respect to any of its loans. Such illegality has been alleged in a law suit brought against Delta, but DB understands that suit is being contested and still is pending.
The Applicants’ response refers to “a law suit brought against Delta” -- without saying that Bankers Trust is a defendant in that law suit as well. Now, the American Banker newspaper carries reports that Bankers Trust is suspending all business with Delta. American Banker of April 6, 1999, at 28. For that report, “Bankers Trust declined to comment.” Id. But this commitment was made by senior BT officials, at a meeting that including the ex-Comptroller of the Currency. So -- who speaks for Bankers Trust?
White & Case’s letter goes on to claim that the Fair Housing Act doesn’t apply to Bankers Trust’s pooling, “[s]ince BTC is not itself engaged as a principal in any purchase or pooling of mortgage loans made by subprime lenders.” Letter at 2.
As ICP has now pointed out to the Fed:
BTC is a “purchas[er] of... securities... which are secured by residential real estate:” see, e.g., The American Banker of January 22, 1999, “Top 50 Banks in Mortgage-Backed Securities Pass-Through Holdings,” reporting that BTC holds $1,859,500,000 in pass-through MBS.
The Applicants’ Resp. at 2 states that ICP “continues to refer inaccurately to ‘Bankers Trust’s pooling activities...’ and appears to pretend that custodian/trustee functions are the same as pooling activities.” For simplicity’s sake, ICP directs the Board to the Exhibit L that the Applicants erroneously sought to withhold: “Pooling and Services Agreement Dated as of August 31, 1998” between Delta and Bankers Trust Company of California, N.A., in connection with Home Equity Loan Asset-Backed Certificates Series 1998-3. If BTC itself has entered into what it calls “Pooling... Agreements” with Delta, it is difficult to understand, on the record, how the Applicants claim that BTC is not involved in pooling.
The Applicants’ continued claim that BTC is not covered by the fair lending laws in connection with its activities in subprime lending, and confirmation that BTC neither has nor will implement any compliance policies and procedures in connection with this activity -- is a seriously adverse managerial factor on this Application. The issue has been squarely raised to the Applicants for at least seven weeks now. BTC’s (and DB’s) resistance to compliance with the fair lending laws cannot be separated, on this record, from the Application. Together (and consistent) with the Applicants’ other serious compliance violations, including admitted felonies, the current record does not legitimately support approval of the Application.
Given the current record, the Board would be remiss in its duties under the fair lending laws, the CRA and the BHC Act if it did not fully and appropriately act on this issue, in connection with the Application.
The Applicants’ Response is similarly elusive as to the DB / FBSEA Holocaust-related issues. The Resp. at 3 makes much of a distinction between “DB’s position as a bank in Germany during the Nazi period and that of banks in non-German occupied countries.” It is unclear if DB is claiming that it was forced by the German government to make loans for the construction of Auschwitz. There does not appear to be an evidence of such coercion; and, as previously entered into the record, DB’s CEO during the relevant time frame was later barred from the United States for DB’s activities during the Holocaust.
The Applicants next claim that “German banking officials are well aware of the issues surrounding the World War II activities of DB, and DB has kept the German banking regulators fully informed of events that have been transpiring.” Resp. at 3. If the German regulators were fully aware of DB’s Holocaust-related activities, and took no action until outcry arose (primarily outside of Germany), ICP contends that this does call into question the ability or willingness of the German bank regulators to provide comprehensive and consolidated supervision of the DB Group -- which, under this Application, would come to include BTC in the United States.
The New York State Banking Department has been even more remiss -- the Department has withheld all documentation of its communications with the Banks, and apparently hopes that the members of the Banking Board (one of whom is a Bankers Trust official) will simply rubber-stamp the Application. The Department claims, however, to be looking closely at Delta, and that its examination of Delta, which it referred to in response to ICP’s complaint against Delta in November 1998, is still ongoing. Governor Pataki, meanwhile, states that Holocaust issues will be taken very seriously in connection with bank merger applications. We’ll see...
March 31, 1999
Deutsche Bank continues its delayed releases of its responses to Federal Reserve Board questions about its application to acquire Bankers Trust. On March 30, Deutsche Bank released a copy of ten page letter to the Fed, dated March 25. The letter states that it is “in response to the questions raised by staff... in recent telephone calls.”
While opponents of the merger were supposed to have been informed of these telephone calls in advance, under the Fed’s own rules, they were not. ICP has requested documents reflecting the calls (and other contacts, including Deutsche CEO Breuer’s March 22 meeting with the New York Fed) under the Freedom of Information Act.
Deutsche’s March 25 letter recites a Fed question as to whether DaimlerChrysler meets the 50% asset and revenue test and the permissible U.S. activities test of Regulation K, and provides this answer: “The 1998 financial information of DaimlerChrysler will not be available until after March 31, 1999. DB will provide an answer to this question as soon as it can after that date.”
Deutsche’s letter again reveals its tax “avoidance” strategies. The Fed asks, “Please describe how the funds will get from BIC to BTC.” Deutsche responds: “BIC cannot pay a dividend in the first year after the purchase by New OpCo of the BIC-owned assets for tax reasons. However, BIC can lend money to Bankers Trust Company. In turn, Bankers Trust Company could, without any required regulatory approval, dividend an amount equal to the proceeds of such loan to BTC.”
That is to say, if BIC paid a dividend to BTC, it would have to pay taxes. But BIC can lend money to BT Co., and BT Co. can, “without any required regulatory approval,” pay a dividend to BTC, in the precise amount of the “loan” it receives from BIC. While the Fed is not charged with collecting taxes, some might conclude that the Fed has some duty to forward the banks’ form-over-substance “tax avoidance” plan to appropriate agencies...
Deutsche Bank’s letter also provides insight into BT’s (and the Fed’s) strange approach to the “conditions” the Fed imposes in approval orders, in this case conditions to conform the investment activities of BT Alex. Brown to the law. The Fed asks Deutsche Bank for “a more extensive discussion of BTC’s progress to date on conforming the investments... BTC may submit a progress chart directly to Board Staff if providing this information to DB is view as sensitive by BTC.”
Deutsche Bank responds that “[f]or a portion of the first year after consummation of the Alex. Brown acquisition, BTC deferred from raising the investment partnership issue with Board Staff because legislation was pending that would have obviated the restructuring, and because the Board was actively considering a number of acquisitions that raised similar issues, including NationsBank/BankAmerica, Citicorp/Travelers, Norwest/Wells Fargo and Bank One/First Chicago.”
That is to say, even when a Fed order appears to commit a bank to beginning to restructure or divest as quickly as possible, the Fed allows the bank to delay, to wait on pending legislation, and on Fed rulings on other mergers. The “conditions” the Fed publicly imposes -- mean far less than they appear to.
Deutsche Bank’s letter continues: “On or about November 23, 1998, Board Staff gave oral guidance to permit a nonvoting interest of 15%, which included a voting interest of 4.9%, for investment partnerships that BTC advised.... Approximately one week after Board Staff provided guidance to BTC, DB announced its agreement to acquire BTC.... BTC has taken no action to conform the Alex. Brown partnerships since the acquisition by DB was announced.”
So -- nothing has been done to comply with the “conditions” the Fed publicly imposed when it approved BTC-Alex. Brown. First BT was waiting for legislation, then it got “oral guidance” -- but then DB announced it would apply to take over BT, apparently justifying still not moving to restructure. Now DB is asking the Fed for an extension of the two-year period the Fed gave to conform the Alex. Brown investments to the BHC Act. If the Fed were to give this extension, on this record, the lack of substance to its “conditions” would be apparent...
The Fed then asks for “more specific information” on certain investments, and Deutsche responds with references to:
--a Bermuda-based insurance underwriter for BTC
--an export trading company that “was recently used as the vehicle to hold certain municipal bonds”
--the Grand Bahama and San Pedro “Navigation Corporations”
--14 Real Estate Investment Trusts that hold “GNMAs;” etc..
Deutsche Bank then requests confidential treatment for its own 1998 Annual Report. ICP is pursuing this and other information under FOIA, and is raising to the Fed that Deutsche Bank should not profit from its systematically delayed release of the documents it files with the Fed.
March 29, 1999
Deutsche Bank has been asked by the Federal Reserve to revise its previous answers about its fair lending compliance programs. It turns out that Deutsche, through Deutsche Financial Service Corporation, has been involved in lending on manufactured housing -- mobile homes. In its previous answers to Fed questions, Deutsche omitted this information -- and also the fact that Bankers Trust, in its involvement with subprime lenders, explicitly has the responsibility of ensuring that loans that "do not meet the criteria" for the pool are removed. This makes the applicability of the Fair Housing Act to Bankers Trust all the more clear. Both were revealed in a letter to the Fed from the Banks' lawyers, dated March 25, but provided to ICP after close of business on Friday, March 26, 1999.
March 23, 1999
The gap between the public and private processing of Deutsche Bank’s applications to acquire Bankers Trust continues to grow wider. On March 22, Deutsche CEO Breuer, along with BT’s Newman, Ludwig and Hattem, met with NYC housing officials and others; Mr. Breuer then reportedly headed to the Federal Reserve Bank of New York to meet with the FRBNY’s Bill McDonough (see below). In the banks’ minds, the issues surrounding BT’s activities in predatory lending may appear to have been resolved, by an off-the-record projection by BT that it will no longer work with Delta Funding. It must be noted that this projection has not been made, in the record, to either the Fed or the New York State Banking Department.
In fact, the banks’ most recent response to the Fed’s second inquiry about BT’s activities in subprime lending makes clear that BT neither has, nor is committing to implement, any fair lending or consumer protection compliance program for its activities in subprime lending -- despite the fact that the Fair Housing Act applies to the “pooling” in which BT engages.
ICP has just received a copy of the banks’ counsel’s letter to the Fed, purporting to respond to Fed questions directly on this issue. Here is the pertinent text of the banks’ letter:
March 19, 1999
Ms. Shawn McNulty
Division of Consumer and Community Affairs
Board of Governors of the Federal Reserve System
Washington, DC 20551
Dear Ms. McNulty:
This letter is in response to your March 15, 1999 letter with regard to the application and notice by Deutsche Bank AG, Frankfurt, Germany (“DB”), to acquire Bankers Trust Corporation, New York, New York (“BTC”). You have posed several questions, which we have responded to below in the order that they were presented in your letter.
1. Please provide a full description of any policies, practices or procedures (including any related documentation) which DB, BTC or any of their respective United States subsidiaries have in place, with respect to any pooling or servicing agreements or similar undertakings, for the purposes of ensuring that any criteria applicable to such agreements, which define loans acceptable for transfer or sale to the trustee, do not cause or influence the seller/servicer to discriminate, either in the origination of loans or the selection of loans for transfer [or] sale, on a basis prohibited under the Equal Credit Opportunity Act (“ECOA”) or the Fair Housing Act (“FH Act”).
(a) Deutsche Bank
...DB and its U.S. subsidiaries may purchase from time to time packages of consumer loans originated by third parties...
(b) Bankers Trust Corporation
BTC understands that it is industry practice, and it is certainly the practice of BTC, in securitization transactions to require representations by the lenders securitizing the relevant loans that all requirements of applicable federal, state and local law have been met, which would include, by definition, laws relating to truth in lending, real estate settlement procedures, consumer credit protection and equal credit opportunity.
As trustee, BTC has not been contractually obligated to conduct any due diligence on the loans being transferred or on the documentation of such loans for the purposes of assuring compliance with relevant law. In the case of loan securitizations, the industry practice is to treat compliance with law as the responsibility of the lender, the remedy for which is repurchase by the lender of the loans that do not comply.
Trustees are not involved in the due diligence process. Such a role would duplicate the responsibilities and efforts of the lender itself, the underwriters and the insurers, all of which already have considerable due diligence and/or financial exposure. It would also potentially duplicate certain responsibilities of the rating agencies, attorneys and accountants which are required to render opinions. In addition, such due diligence would be expensive and time consuming, requiring a loan-by-loan review of circumstances surrounding each loan and could potentially delay the securitization. Moreover, the fees paid to a trustee would not, in BTC’s view, be sufficient to compensate the trustee for such a role. Finally, there may be an issue as to whether such an expanded role would exceed the scope of the trustee’s contractual powers.
As a practical matter, a potential trustee which sought to expand dramatically the current limited role of the trustee would never be named trustee. BTC believes no trustee would seek to win an appointment as trustee if it were required to seek such a dramatic expansion of its obligations and responsibilities for the very limited fee that it is able to charge.
2. Please provide a full description of any policies, practices or procedures (including any related documentation) which DB, BTC or any of their respective United States subsidiaries have in place, with respect to any pooling or servicing agreements or similar undertakings, for reviewing loan documents transferred by the seller/servicer to determine whether or not such loans comply with the requirements of the Truth in Lending Act, particularly the amendments thereto imposed under the Home Ownership and Equity Protection Act of 1994.
(a) Detusche Bank
As indicated in the response to question 1... DB as a purchaser of consumer loan packages receives the representation and warranty referred to in response to question 1 and does not review the underlying loan documentation to determine independently whether the loans in the package being acquire satisfy this or the numerous other representations and warranties given by sellers...
(b) Bankers Trust Corporation
See answer 1(b).
3. Please provide a full description of any policies, practices or procedures (including any related documentation) which DB, BTC or any of their respective United States subsidiaries have in place, with respect to any pooling or servicing agreements or similar undertakings, for reviewing loan documents transferred by the seller/servicer to determine whether or not the terms and conditions of said loan documents demonstrate, either singly or in the aggregate, that a seller/servicer discriminated on a basis prohibited under the ECOA or FH Act.
(a) Deutsche Bank
As indicated in the response to question 1... DB as a purchaser of consumer loan packages receives the representation and warranty referred to in response to question 1 and does not review the underlying loan documentation to determine independently whether the loans in the package being acquire satisfy this or the numerous other representations and warranties given by sellers...
(b) Bankers Trust Corporation
See answer 1(b).
4 Please state whether or not DB, BTC or any of their respective United States subsidiaries are presently engaged directly in sub-prime lending or have been so engaged within the past two years.
(a) Deutsche Bank
Neither DB nor any of its U.S. subsidiaries are presently engaged directly in sub-prime lending and have not been so engaged within the past two years.
(b) Bankers Trust Corporation
BTC and its U.S. subsidiaries do not currently engage, and have not engaged directly within the past two years, in subprime lending. BTC’s role in the sub-prime lending business is limited to providing document custody services to originators and trust and custody services to purchasers of sub-prime mortgage loans in securitization transactions. BTC does not originate, deal in or service sub-prime loans....
Very Truly Yours,
Kevin F. Barnard
[White & Case LLP]
This "defense" -- that it would be too expensive to comply with the Fair Housing Act (which, as ICP has demonstrated to the Fed and NYSBD, applies to the "pooling" in which BT engages -- is a novel one. As set forth below, it is clear that BT did not even review the Home Mortgage Disclosure Act data of Delta and other of its subprime partners. Meanwhile, liberal platitudes to the effect that "we [BT] are a leader," and "we do (or will do) the right thing" continue to fly, behind closed doors, far from the public process...
March 17, 1999
On March 15, 1999, ICP submitted to the New York State Banking Department a detailed analysis of Bankers Trust’s involvement in predatory (and presumptively discriminatory, see below) mortgage lending. The NYSBD has refused to confirm that it is extending its comment period on Deutsche Bank’s application to acquire BT, even those the NYSBD has erroneously withheld all documents reflecting the NYSBD’s admitted communications with the applicants.
It must be noted that Deutsche Bank’s outside counsel has submitted into the record before the Federal Reserve Board (and apparently the NYSBD) NOTHING to rebut or even directly respond to the issues surrounding Bankers Trust’s activities with questionable subprime lenders. Meanwhile, outside of the official process, Deutsche Bank CEO Breuer is coming to New York, to meet with New York City housing officials and others, at which meeting these predatory lending issues are sure to be raised. The regulators, journalists and the public should question this “split” process: no formal response, subject to public scrutiny and cross-examination, in the applications process, while meeting behind closed doors on philanthropic issues unrelated to the harms Bankers Trust has caused, in New York City and elsewhere.
March 10, 1999
Just-released Federal Reserve e-mail reflects solicitude for Bankers Trust’s and Deutsche Bank’s applications: a burst of interest in Bankers Trust activity in predatory lending that ended (according to the documents) very quickly; assistance to Deutsche Bank is “retrieving” from the public portions of its Application, withholding of minutes of meetings, and an unexplained breach of procedure, in providing the Applicants with the protest letters early, but not requiring the Banks to respond during the comment period. The Fed’s process is deeply tainted:
The Federal Reserve has, on reconsideration of ICP's Freedom of Information Act request, granted ICP access to “portions of... copies of e-mail messages among [Federal Reserve] System staff. The remaining information in those documents... will be withheld from you....”.
The documents include these e-mails:
Robert E. Cook, 1/19/99, 8:37 a.m.: “I think we ought to get together early today to discuss Bankers Trust’s involvement with Delta Mortgage.”
Charles S. Fleet, 1/19/99, 9:00 a.m.: “What’s all that about and who is Delta Mortgage?... Please respond as to what this as about. Thanks. Charles.”
Beverly Smith, 1/19/99, 9:40 a.m.: “...I am in the dark about ‘Delta Mortgage.’”
Charles S. Fleet, 1/19/99, 11:19 a.m.: “Beverly: ...Delta Funding, a Long Island mortgage company that solicits business from low income homeowners... [A] retired teacher who claims that a Delta salesman coaxed her into putting her home up for collateral for an $88 thousand loan at 13% (to pay off some bills and a previous loan), even though she had no income and no way to make the monthly mortgage payments. Bankers Trust has acted as a conduit through which to sell securities backed by these mortgages. Several civil lawsuits have been filed by homeowners against Delta and Bankers Trust... perhaps we can sit down with Bob and discuss it after you are back in the office. Charles.”
Charles S. Fleet, 1/19/99, 11:41 a.m.: “I don’t know how this will play into analysis of the Deutsche/B.T. case.”
Adrianne G. Threatt, 1/19/99, 1:05 p.m. [Forwarding the above-quoted e-mail chain to FRB lawyers Tom Corsi and Mark VanDerWeide].
And there the chain ends. No further e-mails have been provided. In the record before the FRB now are deeds from Bankers Trust’s foreclosures in dozens of states, Bankers Trust’s involvement with other questionable subprime lenders, from Aames to United Companies, and Deutsche Bank’s response, making clear that Bankers Trust has no fair lending program in place to monitor its activities with subprime lending. Despite late released documents, despite the banks’ inappropriate attempt to keep confidential Bankers Trust’s Pooling Agreements with Delta Funding, despite the Fed’s own unexplained error of withholding the above-quoted e-mails until after the expiration of its comment period -- the Fed’s wheels keep turning on this Application. See below, “Word on the Street...”.
The Fed’s solicitude for this Application, or these Applicants, can be seen in other e-mails released to ICP:
Kathleen Fallon, BSRNY, 1/19/99, 10:25 a.m., to the aforementioned Tom Corsi, Mark VanDerWeide, Adrianne Threatt, and Melissa Clark: “As you know, we have received a dozen comment letters to date on the Deutsche-BT proposal. In a departure from regular practice, we have forwarded these comments to Kevin Barnard prior to receipt of the application. Further, we have not specified a deadline by which the applicants should respond to the comments.” [This is followed by a redaction -- the remainder of the communication has been withheld].
The “departure from regular practice” is significant in this way: the Federal Reserve’s “Ex Parte” Rules, prohibiting communications with parties without the other parties (including protesters) being present -- are triggered by the transmission of the protest letters to the Applicant. But here the Fed did not then, and has continue not to, follow its Ex Parte Rules. Also, by not specifying a date by which the applicants should respond to the comments, the commenters were denied any right to reply to the Banks’ response. Perhaps the remainder of this e-mail, which the Fed has withheld, explains why the Fed “depart[ed] from [its] regular practice.” ICP FOIA appeal is pending...
Other solicitude is demonstrated in a January 25, 1999, e-mail from FRB lawyer Tom Corsi: “As you may have heard, when Deutsche Bank filed its application last week it inadvertently includes some information that it now regards as confidential in the public portion of the application. I now have a list of the problematic pages. I’m working with the FOIA office to make sure that these pages are not released...[LONG REDACTION}... P.S. I have spoken with Mike Campbell at the New York Reserve Bank to make sure that they are also withholding this information.” This is followed by a message from FRB Associate General Counsel Scott Alvarez back to Mr. Corsi, stating: “Tom, please follow this up with a phone call to each of the folks here. Thanks, Scott.”
There appears to be a greater focus at the Fed, and at a higher level, on helping Deutsche Bank to withdraw information Deutsche Bank itself submitted without the required request for confidential treatment -- than in inquiring into Bankers Trust’s activities in predatory lending. At least, that’s all that ICP can infer, given that the Fed has provided no documents about Delta Funding and Bankers Trust from January 19, 1999, forward. No analysis has been provided about Deutsche Bank’s February 25, 1999, submission, that made clear that Bankers Trust has no fair lending program in place to monitor its activities with subprime lending. Despite this, despite the banks’ inappropriate attempt to keep confidential Bankers Trust’s Pooling Agreements with Delta Funding, despite the Fed’s own unexplained error of withholding the above-quoted e-mails until after the expiration of its comment period -- the Fed’s wheels keep turning on this Application. See below, “Word on the Street...”. Updates forthcoming...
March 8, 1999, Update
On March 8, ICP filed opposition to Deutsche Bank’s applications to acquire Bankers Trust subsidiaries with the state banking departments in three states. For each state, ICP documented Bankers Trust’s involvement in predatory lending and foreclosures, including with deeds that list Bankers Trust as the “lender” -- undercutting BT’s argument that it is not responsible for these predatory loans.
Also on March 8, ICP and the Delaware Community Reinvestment Action Council made a similar, 30-page filing with the Delaware Banking Commissioner, detailing Bankers Trust’s many foreclosures in Delaware, including in Wilmington and New Castle, and comparing these with the indirect CRA programs of Bankers Trust (Delaware). Preparations are being made for the Delaware Banking Department's public hearing, currently scheduled for March 25. Updates forthcoming...
Meanwhile, late on March 5, the Federal Reserve Board faxed ICP a letter stating that improperly withheld information about the application, including internal Fed communications and the Pooling Agreements between Bankers Trust and the predatory lender Delta Funding, would not be released to ICP. The Fed’s letter states that the FRB Secretary has “reconsidered” the previous withholding, based on “additional facts” -- without explaining what those facts are. ICP is preparing a further submission to the Fed (including copies of deeds that list Bankers Trust as the mortgage lender), which submission, it seems clear based on the Fed’s own erroneous withholding of information, including the “Pooling Agreements” between Bankers Trust and Delta Funding, the Fed will have to consider.
March 1, 1999, update:
On Friday, February 26, Deutsche Bank’s law firm, White & Case, faxed ICP a copy of its 35-page, February 25 response to a Federal Reserve “Question Letter” of February 12. Among other things, the Fed asked about Bankers Trust’s relationship with Delta Funding (see Feb. 8 report, below), and for a description of “DB’s and BTC’s programs to monitor compliance with the fair lending laws.” The banks’ response does not mention ANY fair lending program that would cover Bankers Trust’s involvement in high interest rate, “subprime” lending, and confines the substance of its response to the Delta Funding question to “Confidential” exhibits, that ICP is now requesting under the Freedom of Information Act.
Deutsche Bank’s response also makes clear, for the first time, that Deutsche Bank is asking the Fed for a number of unprecedented legal favors, including waiving the requirement that “US HoldCo,” an intermediate holding company Deutsche proposes to establish to avoid taxes, register as a bank holding company and comply with U.S. capital adequacy guidelines.
Despite the fact the US HoldCo would own Bankers Trust, and therefore be a bank holding company, and despite the fact that Deutsche Bank admits that it "has been unable to find any case wher this treatment has been accorded to intermediate holding companies incorporated in the United States," Deutsche Bank's argument is that its "desire to avoid... tax liability should not be at the cost of having to maintain capital in U.S. subsidiaries that is not called for by any relevant bank supervision consideration in the United States." DB's Resp. at 4, 5. Of course, the LAW requires it, and DB can find no case to contradict this.
ICP’s March 1 filing (to be summarized soon in this space) cites to the Foreign Bank Supervision Enhancement Act that Congress passed in the wake of the BCCI scandal, and opposes Deutsche Bank's requests for waivers. ICP has also opposed Deutsche Bank's request for exemptions from section 23A of the Federal Reserve Act, concerning financing between affiliates, particularly because DB has confined the substance of its response to a Confidential Exhibit, other than a statement that DB intends to use "funding from its Cayman Island Branch." It's worth noting that Rep. Jim Leach, chairman of the House Banking Committee, during the October 1, 1998, hearings on the Fed's bail-out of Long Term Capital Management, recounted that "his father had told him to avoid anyone doing business out of the Cayman Islands." Fortune Magazine, October 26, 1998, at page 110.
Deutsche Bank also asks for an extension of time to comply to the conditions the Fed imposed on its approval of Bankers Trust’s acquisition of Alex Brown -- while stating that it would combine a number of computer systems with Bankers Trust before the end of the second quarter of 1999 (when it “desires” to consummate this proposal).
ICP has submitted a 24-page supplemental comment opposing the Application, and replying to Deutsche Bank’s Feb. 25 response. ICP’s submission provides more detailed analysis of Bankers Trust’s involvement in high interest rate mortgages, disproportionately in communities of color, and provides the regulators with a methodology to further access this troubling pattern in all of the communities where Bankers Trust owns and forecloses on homes. ICP’s just filed supplemental comment will be summarized in this space as soon as time allows. In the interim, for or with further information, please contact us.
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Deutsche Bank-Bankers Trust: On February 8, 1999, Inner City Press / Community on the Move and the Inner City Public Interest Law Center filed a 32-page protest to this proposed merger, with the Federal Reserve Board and New York State Banking Department. ICP's protest was reported on the Reuters newswire on February 8, by the Bureau of National Affairs on February 9, and by New York Newsday on February 10, 1999. Click here to view ICP's News Link.
ICP’s petition documents Bankers Trust’s extensive involvement in predatory high-interest rate mortgage lending, including tracking BT’s foreclosures on homes in low income communities all over the U.S., from the Bronx to Miami, from Buffalo to New Orleans. ICP has documented that Bankers Trust is a major enabler of predatory lending, and contends that the regulators must now act on this issue, which they have ignored in recent Community Reinvestment Act examinations of Bankers Trust.
Because the regulators perceive BT to be an investment bank, they have looked only at BT’s grant-giving, and not at its actual destabilizing effect on poor neighborhoods, as a trustee / custodian for high interest rate loans made by, for example, Delta Funding, Aames Financial, United Companies, First Alliance, Wilshire Funding, Provident Bank, and others, as an issuer of warehouse lines of credit to subprime lenders, and as a major forecloser on houses in low income communities.
This proposed merger is also being opposed based on the mounting evidence of Deutsche Bank’s activities during the Holocaust. ICP raised similar issues to the Fed during the merger of UBS and SBC in 1998, and a quarter of the Fed’s order in that case related to these issues. See 84 Federal Reserve Bulletin 684 (August 1998).
ICP’s protest also asserts that the Federal Reserve is impermissibly withholding information about the merger, both portions of the application, and documents concerning meetings the Fed and its Chairman have held with the banks. In light of public reports that the two companies were meeting with the Federal Reserve Board, prior to finalizing their merger agreement, ICP on December 1, 1998, submitted a Freedom of Information Act (FOIA) request to the Fed, asking for all documents reflecting the Fed’s discussions with the companies.
In January, 1999, the Fed provided ICP with only 23 pages, most of which were entirely whited-out. ICP has appealed this FOIA denial, and has written to the Department of Justice, the implementer of FOIA, to investigate the Federal Reserve’s FOIA (and merger review) practices. This was reported on the Reuters newswire of January 15, 1999. Click here to view ICP's News Link. ICP is particularly troubled by, and has asked the DOJ to target, the fact that the FRB, alone along federal agencies, deems notes taken by its officials of conversations with corporations to be “non-agency records,” the legal equivalent of personal notes like a shopping list or love letter, and does not even disclose when it is withholding responsive documents on this basis.
Most recently, Fed Governor Rivlin sent ICP a letter on February 12, 1999, stating along other things that the Fed believes that FOIA “does not require agencies to search for or disclose the existence of information that is not ‘agency records’ within the meaning of the Act. Accordingly, your request in this regard is denied.” Emphasis added.
DOJ staff have indicated that the Attorney General’s Office has issued guidance that agencies, if they are deeming otherwise responsive documents to be non-agency records, must at least disclose this in a FOIA denial letter. Otherwise, how would the requester even know to appeal, or even be able to appeal (since there would be no “denial”)? Click here to view the most recent ICP Federal Reserve Reporter, on other recent instances of the Fed's contempt for FOIA, including in connection with its communications about LTCM.
ICP contends that the Fed’s comment period on Deutsche Bank's proposed acquisition of Bankers Trust, set to expire on March 1, cannot legitimately close until the withheld information is released.
On February 16, 1999, the FRB's FOIA unit has released to ICP (two months late) its staff counsel's Dec. 15, 1998, Memo To File regarding a meeting of that date with Deutsche Bank and its lawyers. The memo has been partially redacted by the Fed, and leaves in the statement regarding "a proposal under consideration to hold Bankers Trust through two holding companies, one of which would be located in the U.S., and one of which would be located outside the U.S.... Deutsche Bank is likely to transfer the Edge Act subsidiary of Bankers Trust Company to Deutsche Bank. With respect to the section 20 subsidiary of Bankers Trust... it would likely become a subsidiary of the section 20 subsidiary of Deutsche Bank... The meeting lasted approximately 90 minutes."
ICP Fed Reporter "note to file:" In order to evade FOIA and public scrutiny, it now appears that the Fed discourages the mega-applicants with which it will hold such meetings from putting anything in writing (as Citicorp and Travelers did) -- rather, the Fed lawyers will create sketchy "memos to file," which the Fed will withhold for two or more months. As analyzed in more detail below, the Fed appears to have no policy regarding when its lawyers' memorializations of meetings are "agency records," and when they will be withheld as "personal records."
ICP is preparing a second, even more detailed study of Bankers Trust’s extensive foreclosures and involvement with predatory subprime lending. Meanwhile, Deutsche Bank chairman Rolf Breuer, just returned from meetings in Washington, D.C., at a conference on mergers in Frankfurt, Germany, characterized the public comment process as people who "will interfere with our application process." Reuters newswire, February 10, 1999, emphasis added. We didn't know that the banks owned the application process, and that public comments were just "interference" with "their" process. Perhaps that's another issue on which we disagree with Mr. Breuer -- and, apparently, with the Federal Reserve Board.
ICP will post updates on this campaign on this web site. For or with more information, please contact us.
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