Deutsche Bank’s New Old Losses: When a Candy Bites Back

This is a syndicated repost courtesy of True Economics. To view original, click here. Reposted with permission.

Our good old friends at @DeutscheBankAG have been at it again… this time (h/t to @macromon) raking in $1.6 billion of freshly announced losses from pre-Global Financial Crisis trades in municipal bonds. Story at WSJ: (gated)

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In summary: “This transaction was unwound in 2016 as part of the closure of our Non-Core Operations”, according to the spokeswoman email to the WSJ. DB ca $7.8 billion portfolio of 500 municipal bonds back in 2007. The bonds were insured by specialised mono-line insurers to protect against default. In March of 2008, the bank followed up the trade by buying additional default protection from Berkshire Hathaway for $140 million. Insure-and-forget, right?By the end of 2011, the bank had a little over $115 million of reserves set aside to cover potential losses on the trade. That figure rose to over $1 billion at the start of 2016. By May 2016, the bank calculated an additional loss of $728-$768 million on a potential sale of the portfolio net of the loss protection from Berkshire.

Per WSJ, this loss – previously unreported – amounts to ca x4 times DB’s 2018 profits.

The champs!

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