NY Fed found serious problems at Deutsche Bank's U.S. arms: sources

Wed Jul 23, 2014 3:28pm EDT
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By Katherin Jones and Arno Schuetze

FRANKFURT (Reuters) - The Federal Reserve Bank of New York has found serious problems in Deutsche Bank AG's U.S. operations, including shoddy financial reporting, weak technology and inadequate auditing and oversight, people close to the matter told Reuters.

In a letter to the German lender's executives last December, a senior official with the New York Fed described financial reports produced by some of the bank's U.S. divisions as "low quality, inaccurate and unreliable", said one of the sources, who is familiar with the letter.

The New York Fed, as the U.S. central bank's eyes and ears on Wall Street, directly supervises the biggest U.S. and foreign banks, partly through embedded regulators who go to work each day inside the firms.

"The size and breadth of errors strongly suggest that the firm's entire U.S. regulatory reporting structure requires wide-ranging remedial action," said the letter, first reported by the Wall Street Journal. (on.wsj.com/1r3VIn3)

The New York Fed declined to comment, citing the confidentiality of supervisory activities. The European Central Bank and German financial watchdog Bafin declined to comment.

Deutsche said it was investing 1 billion euros ($1.4 billion) to upgrade its internal systems, including the quality of its reporting, with about 1,300 people working on the improvements. "We have been working diligently to further strengthen our systems and controls," a spokeswoman said.

The letter is nonetheless a blow to Deutsche Bank co-Chief Executives Juergen Fitschen and Anshu Jain, who have been seeking to transform the lender's corporate culture amid scandals, investigations and fines following the financial crisis of 2008-2009.

While the New York State Department of Financial Services is looking at Deutsche in relation to issues including possible forex manipulation and Iran sanctions violations, the New York Fed's concerns are separate and arose from routine examinations by its staff, a source familiar with the matter said.   Continued...

A man walks past Deutsche Bank offices in London December 5, 2013. REUTERS/Luke MacGregor