The Deutsche Bank case, in which three whistleblowers have accused the bank of hiding up to $12bn in derivatives losses during the financial crisis, is complex, confusing and opaque. But the underlying principle is simple and important.
Banks used to have a lot of leeway in how to treat bad loans at the bottom of the cycle. That allowed groups to avoid taking losses immediately, and instead to wait for the assets to rise in value again.
But the rules for recognising bad loans have tightened over the past three decades, while a lot of credit instruments are now carried on a mark-to-market basis instead of on the loan book. Their old freedom of manoeuvre has largely gone. Read more
If you wait around long enough, you will observe another retreat by Nomura from trying to transform itself from a dominant retail stockbroker in Japan into a global investment bank.
The latest example comes after an insider trading scandal that led to the replacement of its senior executives. Nomura is already signalling clearly that it is turning its back on the latest expansion, which dates from 2008.
This time, Nomura tried to use the acquisition of the Asian and European operations of Lehman Brothers to march on to the global stage. However, it has not come to much more than its experiments with US commercial real estate securitisation in the 1990s and sub-prime mortgages in the 2000s. Read more
The Moody’s downgrade of 15 banks is a backward-looking review of the strategy that has dominated global banking for the past two decades – expanding into high-margin capital markets operations. It does not get good marks.
There was always a problem inherent in banks such as Deutsche Bank, Barclays, UBS, Bank of America, Credit Suisse and others trying to play in the investment banking world. Yet it took a very long time for a penalty to be applied.
Of course, the question is why it wasn’t applied earlier. Many of the things that Moody’s writes about in its note accompanying the downgrades were evident a long time ago – high volatility came with high margins. Read more
Deutsche Bank’s procrastination over who should take over from Josef Ackermann as chief executive – and its readiness to consider co-chiefs to replace him – smacks of indecision, poor succession planning and compromise at the top. But could it work? Read more