AT THE EYE OF A LOOMING STORM? THOSE BANKSTER DEATHS AND MORE MISSING ...
It
has been a while since we've talked about those mysterious bankster
deaths, many of them having all the hallmarks of "bankercides (i.e.,
murder by suicide), and it's been even longer since we've talked about
all that "missing money" sloshing around in the system somewhere,
an amount of money in the trillions. Well, Mr. W.D. sent the following
article, and it has my high octane speculation running in high gear and
overtime, but we'll get back to that, because I want to paint in very
broad strokes today. The article that he shared concerns a looming storm
centered around Europe's largest bank, Deutsche Bank, and some
shenanigans that reach out to engulf Italy and, I suspect, pretty much
everyone else. But as I said, we'll get back to that. Here's the lengthy
article by Vernon Silver and Elissa Martinuzzi that appeared on
Bloomberg Business Week:
Of
course, a mere $462,ooo,ooo looks like chump change to a bank as large
and powerful as Deutsche Bank, but there are even vaster sums involved
in this disappearing act. The story begins, according to the article, at
a meeting held at Deutsche Bank's London branch headed by Italian
banker Michele Faissola:
On
Dec. 1, 2008, most of the world’s banks were still panicking through
the financial crisis. Lehman Brothers had collapsed. Merrill Lynch had
been sold. Citigroup and others had required multibillion-dollar
bailouts to survive. But not every institution appeared to be in free
fall. That afternoon, at the London outpost of Deutsche Bank, the
stolid-seeming, €2 trillion German powerhouse, a group of financiers met
to consider a proposal from a team led by a trim, 40-year-old banker
named Michele Faissola.
The scion of an Italian banking family, Faissola
was the head of Deutsche’s global rates unit, a division that created
and sold financial instruments tied to interest rates. He’d been
studying the problems of one of Deutsche’s clients, Italy’s Banca Monte
dei Paschi di Siena, which, as the crisis raged, was down €367 million
($462 million at the time) on a single investment. Losing that much
money was bad; having to include it in the bank’s yearend report to the
public, as required by Italian law, was arguably much worse. Monte dei
Paschi was the world’s oldest bank. It had been operating since 1472,
not long after the invention of the printing press, when the Black Death
was still a living memory. If investors were to find out the extent of
its losses in the 2008 credit crisis, the consequences would be
unpredictable and grave: a run on the bank, a government takeover, or
worse. At the Deutsche meeting, Faissola’s team said it had come up with
a miraculous solution: a new trade that would make Paschi’s loss
disappear. (Emphasis added)
The
crucial point to focus on here is not only Faissola's connection to the
Banca Monte dei Paschi di Sienna, the world's oldest bank, in continual
operation since the Renaissance, but also his position as head of
Deutsche Bank's global rates unit, which, the article also notes,
"created and sold financial instruments tied to interest rates," for
later on in the article, we learn that Deutsche Bank is under
investigation for its role in helping to rig the LIBOR (London
Inter-Bank Offered Rate), which Wikipedia notes is " the primary
benchmark, along with the Euribor, for short-term interest rates around the world." (See Wikipedia: Wikipedia LIBOR):
This
month the bank agreed to pay $7.2 billion to resolve a U.S. probe into
its subprime mortgage business, admitting it misled investors. Deutsche
has paid more than $9 billion in further fines and settlements related
to claims of tax evasion; violating sanctions against Iran, Libya,
Syria, Myanmar, and Sudan; rigging the $300 trillion Libor market; and other alleged breaches of the law.
(Emphasis added)
Having
a division that creates and sells financial instruments "tied to
interest rates" such as the widely used LIBOR is a handy thing to have
around, particularly if one is also engaged in rigging that very London
Inter-Bank Offered Rate!
In any case,
Faissola had approached Deutsche Bank with what can only be regarded as a
"scheme" to help the troubled Banca Monte dei Paschi di Sienna, and
this is where it gets interesting. As the article notes, Faissola
proposed a "sure-thing, moneymaking bet with Deutsche Bank and use those
winnings to extinguish its 2008 trading losses" by engineering a
two-step trade, with one transaction bet which would make immediate
gains, and the second transaction staged over time "that was sure to
lose", and of course, Deutsche Bank would profit from fees in both
trades. But as the article also observes, as Faissola was pitching his
plan - the details of which we'll get to in a moment, doubts were being
raised within the bank about the plan's structure:
Outside
the room, one of Faissola’s longtime colleagues was raising questions
about the deal. William Broeksmit, a managing director who specialized
in risk optimization, was concerned about the winner-loser construction.
A Chicago-born son of a United Church of Christ minister, Broeksmit had
decades earlier been a pioneer in interest rate swaps, the financial
instruments that had rewritten the possibilities—and profitability—of
investment banking. But Broeksmit, 53, was also against reckless
derivative deals, which is how he viewed Faissola’s proposal, according
to a person familiar with his thinking. Eleven minutes after the meeting
began, Broeksmit e-mailed one of its attendees with a warning about the
Paschi trade and its “reputational risks.”
If
the name William Broeksmit sounds familiar, it should for he's one of
those "suicided" bankers, as the article also notes, for when the whole
plan exploded into public view in Italy in 2013, it was accompanied by
two more of those suspicious "banker deaths", one of whom was William
Broeksmit, and the other was David Rossi, of Banca Monte dei Paschi di
Sienna:
Among the
casualties was David Rossi, Paschi’s communications chief. At about 9
p.m. on March 6, a bank employee noticed that Rossi was missing from his
fourth-floor office. A window had been left open. Authorities found
Rossi’s body in a courtyard below. Rossi, 51, wasn’t himself the subject
of any inquiries, but his home had been searched two weeks earlier by
police. His death was at first ruled a suicide, but the inquest has been
reopened based on evidence his wife presented, including security video
that shows Rossi fell out backward.
Several
months after Rossi’s death, in January 2014, Broeksmit was supposed to
meet his wife of almost 30 years at a cafe near their home in the South
Kensington neighborhood of London. He didn’t show. When she returned
home, she found his body hanging from the leash attached to a door. In a
dog bed, he’d left suicide notes, including one addressed to Jain, his
longtime colleague. The New York Post reported last year that the note to Jain contained an apology. A summary of Deutsche Bank’s own review of the suicide, seen by Bloomberg Businessweek, doesn’t mention the note and says the review found no direct link between Broeksmit’s death and his work at Deutsche.
Why
Broeksmit? Well, perhaps because he had been given broad authority
within the big German bank on its "management approval committee, where
Broeksmit had influence. Top management," the article notes, "had just
handed Broeksmit broad authority to police risk across the firm...". And
there's more, for as news began to come out publicly about the details
of the scheme, the German banking regulatory authority, BaFin began an
audit in January 2014, and as Bloomberg Business Week states, even
though the report "has never been make public," Bloomberg managed to
obtain a copy, just how, we're not told, but we may be sure it involved
big players, perhaps in the intelligence community. The audit began on
Jan 27, 2014, the day after Mr. Broeksmit "was found at his London home,
hanging from a dog leash."
As
the article also notes, when Deutsche Bank moved aggressively to enter
the world of investment banking, it hired Edson Mitchell from Merrill
Lynch. Mitchell brought in Broeksmit, and Anshu Jain, "a prodigy at
selling such risky, fee-laden products to hedge funds." Mitchell died in
a plane accident three days before Christmas in 2000.
I don't know about you, but three banker deaths, all tied to the same bank, seems a little more than just "coincidence."
But
whether coincidental or not, the details of the scheme proposed by
Faissola is where we see a number of "red flags" that may tie to my own
speculations about the existence of a worldwide "hidden system of
finance" designed to fund covert operations and black projects
scientific and technological development. The bank's deal with Faissola
and Banca Monte dei Paschi di Sienna is a microcosm of its wider modus operandi: "The
bank’s deal with Paschi is a microcosm of how Deutsche’s embrace of
derivatives, questionable accounting, and slow-walking of regulators
have eroded the market’s trust to the point that no one really knows how
close the company is to the edge."
Note
the two important elements here: (1) derivatives, which, as we know by
now, include bundles of credit default swaps, high risk mortgages, and
so on, all tied to "triggers" such as interest rates (and, of course,
housing prices), and (2) "questionable accounting" practices. These two
elements, along with the banker deaths, will become important factors in
our high octane speculations. With respect to the first element,
derivatives, the article mentions something else that it is worth
noting:
Deutsche’s most
profitable derivatives trader earned a bonus of almost £90 million (then
$130 million) in 2008 alone. Deutsche bankers also increased their
bonuses in the runup to the crisis by creating and selling to clients
mortgage securities that were marketed as high-quality investments but
were in fact loaded with home loans destined to go bust. For clients,
Deutsche became a go-to bank when they wanted risk and complexity.
Tie
this point together with the previously made point that the bank would
sell to hedge funds, and one gets the picture: derivatives had entered
the balance sheets as assets in those funds, and this ties the whole
mess to, you guessed it, pension funds, traditionally heavy investors in
hedge funds.
So what was the actual "two stage deal" with Faissola?
Here's it's best to cite the article somewhat extensively, for as always, the devil of financial fraud is in the details:
In
May 2002, when it was 530 years old, Monte dei Paschi asked Deutsche
Bank to sell it something complicated. Paschi had recently listed its
shares on the Italian stock exchange and was under pressure to grow. It
owned a piece of another bank known today as Intesa Sanpaolo and wanted
to convert some of that stake into cash for acquisitions, while still
benefiting from any rise in Intesa’s shares—a kind of
have-cake-and-eat-it-too arrangement. It was exactly the kind of bespoke
financial product the new, risk-friendly Deutsche was growing fat on.
The two banks created a venture called Santorini
Investments—essentially, a derivative bet in the form of a company. The
bet would pay off if Intesa shares rose and would lose value if they
fell. Later restructuring made Paschi the sole shareholder.
The
switch meant that in 2008, when bank stocks tanked in the worldwide
financial crisis, Paschi took all of the losses, which swelled from €180
million in early October to more than €300 million in the following
weeks. The bank’s own shares were on their way to losing half their
value since the start of the year. If Paschi included the Santorini loss
in its Dec. 31 reports, the consequences would be dire: Italy’s central
bank could take over its administration or force a bailout that would
wrest control from its owners, a politically connected Siena foundation.
As the losses grew, Deutsche executives knew time was running out for
Paschi to find a solution. Having done the first deal, they went to
Paschi management with a proposal for a second that would both help the
Tuscan bank and be a new source of fees for Faissola’s group. On Nov. 3
they sent Paschi draft contracts for the sure-to-win/sure-to-lose trade
that straddled the new year. Each prong of the bet simply wagered on an
index that was the exact inverse of the other. Essentially, the trade
had little economic purpose—only an accounting one.
That’s
typically a red flag to auditors and regulators, and it took almost a
month for Deutsche to alter the deal so it contained a small amount of
actual risk. The bankers did this by mixing in two interest rate
triggers—that is, prices to be fed into a formula that would determine
how much money the participants in the trade had to pay or receive from
each other. But that created a slight possibility that Paschi could win
both sides of the bet. To mitigate this potential Deutsche loss—as much
as €500 million—Deutsche added a third trigger. Underlying the now
complex flowcharts of rates, payments, and triggering events was the
asset on which the transactions were to be based: about €2 billion in
Italian government bonds.
Further
illustrating the incestuousness of the deal, Paschi would need to buy
the bonds and hand them over to Deutsche as collateral. Deutsche, for
the sake of its own accounting, would need to sell the bonds to come up
with cash that it then would give right back to Paschi to pay off the
Santorini loss. And Paschi would buy the bonds in the first place from a
third bank that had bought them from Deutsche.
And one more thing:
Deutsche
also benefited from the way it accounted internally for its side of the
deal. That complex shuttling of Italian bonds? The bank decided that
all of the back-and-forth maneuvers canceled themselves out and did not
need to appear on its balance sheet. Deutsche began to apply the
practice to transactions around the world, totaling more than $10
billion that never showed up on its books and making the bank look
smaller and less risky than it really was.
Thus, enter the second element: "questionable accounting."
But
where's the high octane speculation in all this? Unfortunately, that
will have to wait until tomorrow. However, one clue is afforded in the
fact that the "banker deaths" are not confined to Deutsche Bank or to
Banca Monte dei Pashi di Sienna. In fact, as we've followed the story on
this website, those deaths also engulf J.P. Morgan, insurance
companies, and other prime western banks, from London, to New England,
to Hong Kong.
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