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.
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.
See you on the flip side...