Deutsche Bank back under fire for derivatives exposure

Deutsche Bank, its CEO Christian Sewing, and derivatives made headlines again in the German and international press, this time in a roundabout way. So much so that the Deutsche Bank share quoted on the Frankfurt Stock Exchange rose 1.5% to EUR 30.

Der Spiegel and Manager Magazin gave wide coverage to the lawsuits filed in recent months against Deutsche Bank by six former employees of Germany's first private bank involved in the notorious 'Santorini' transaction with Monte dei Paschi di Siena in the years 2008-2012. The spoils are rich: a total of EUR 1 billion in damages. The Financial Times turned up the heat on this long-running affair involving banking supervision: the European Central Bank, it reported, received a letter of complaint against Deutsche Bank last month from its former employee Dario Schiraldi, among those implicated in the Santorini case. In the letter, which not only the ECB has read, Schiraldi claims that Deutsche bank's 2024 balance sheet underestimates leveraged exposures by more than 200 billion by using the notorious practice of netting (offsetting similar but opposite derivatives), managing to 'inflate capital and prudential ratios' and giving 'a misleading picture of the bank's financial soundness'.

The ECB, writes the FT, limited itself to 'no comment'. It remains to be seen whether the SSM will take formal action based on Schiraldi's allegations. Initiating an investigation by asking Deutsche Bank for clarification on the basis of this letter would, however, mean that the supervisory authority has failed to control the netting of derivatives, a widespread technique, and also prudential capital.

Deutsche Bank issued a note: "As previously stated, we consider the legal claims made by the former employees in this matter to be completely unfounded and intend to defend ourselves vigorously. We apply netting in accordance with the relevant accounting principles and in line with common practice'.

Schiraldi, who has been residing in Dubai since the start of the Covid19 pandemic, has sued DB in Frankfurt claiming €152m in compensation for lost wages and bonuses over about ten years: the first hearing was supposed to be held this December but was postponed to April 2026. Schiraldi is blaming ceo Christian Sewing for giving the green light to the results of an internal audit in 2013 (Sewing was supervisor of internal audits at the time): the audit blamed the six involved in Santorini for a lack of transparency in Mps transactions in 2008. Deutsche Bank made it clear that it had never accused the six of 'criminal behaviour or unlawful conduct' and recalled that it had paid EUR 10 million in legal fees to defend the former employees in trials in Italy, who were granted full acquittals on appeal in 2022 and 2023. The five other former DB employees involved in the Santorini case sued Deutsche Bank in London.