Morning Coffee: The latest bizarre events at Deutsche Bank. Novice trader's miraculous return from the abyss
Deutsche Bank traders appear to have a faculty for making mistakes. In 2015 they accidentally paid $6bn to a hedge fund client in an FX trade that was afflicted by a fat finger. This was followed by a far fatter finger in April 2018, when $35bn was accidentally transferred to an outside account. There was also a $60m loss on a U.S. rates trade that went awry in June 2017.
Now Deutsche's U.S. traders have done it again - although this time it may be the German bank's often-criticized U.S. risk division that was really to blame.
Bloomberg reports that Deutsche's U.S. traders suffered a one day loss in the first quarter of 2018 that was 12x higher than the amount that the bank's risk officers considered to be possible for that day under their Value at Risk calculations. Nor does this seem to have been an isolated incident - while most rival banks made no losses in excess of risk calculations for the quarter, a U.S. regulatory filing shows that there were four days in the months to March 2018 when losses at DB U.S. Corporation surprised the bank's own risk managers. On one day they were 2.6 times higher than expected; on another they were 1.6 times higher.
The surprise losses happened under the watch of John Cryan, the former Deutsche Bank CEO who left in April 2018. As new boss Christian Sewing sets about cutting 7,000 jobs across Deutsche, many of them from the U.S. investment bank, some of the layoffs may seem valid.
Deutsche's London traders could forgiven for feeling some schadenfreude at the fates of their accident-prone American colleagues: on the day that the U.S. bank made the huge unexpected loss in Q1, Bloomberg says DB's London traders offset the U.S. loss with "related gains." The implications are twofold: that London bailed out the U.S., and/or that DB was engaged in a complex international trade that was ultimately neutral and made individual country-measures of risk exposure irrelevant anyway.
Separately, it's usually the case that when a trader takes too much risk, he or she (although usually he) panics, and makes things worse. Think Kweku Adoboli or Nick Leeson. In the case of Harouna Traoré, a novice day trader with a background in performance analysis software sales at Thomson Reuters, the opposite seems to have happened.
The Financial Times reports that 41 year-old Traoré built up $5bn position in U.S. equity futures and turned a loss of €1m into a profit of more than €10m after mistakenly thinking that he was on a demo version of a UK trading platform. After realizing his mistake and the initial loss, Traoré said he panicked and could only think of his wife and family as he took more risk and ultimately set things right. The brokerage firm is refusing to pay Traoré his €10m and says he breached his contract. He is pursuing them in court.
Ali Almakky, who was heading Deutsche Bank's corporate strategy team from London, and who doesn't speak German, is leaving the bank. (Wall Street Journal)
Soon, doing data science will become as normal as doing Excel. In the meantime, there is something weird and desperate about traditional firms going out and hiring quants. (Bloomberg)
Jefferies just hired Michael Pope, a former managing director at Angelo Gordon who was a senior distressed debt trader there since 2012, as a managing director in sales. (New York Post)
Inside the Google rebellion as ethical engineers refuse to work on a project that would enable the company to win military contracts. 'The engineers became known as the “Group of Nine” and were lionized by like-minded staff.' (Bloomberg)
Why and how companies burn out their high performers. (Harvard Business Review)
Japanese worker punished for starting lunch three minutes early. Bosses bow in apology. (Guardian)
Clinton son-in-law running out of financial industries to try. (Dealbreaker)
Have a confidential story, tip, or comment you’d like to share? Contact: firstname.lastname@example.org
Bear with us if you leave a comment at the bottom of this article: all our comments are moderated by human beings. Sometimes these humans might be asleep, or away from their desks, so it may take a while for your comment to appear. Eventually it will – unless it’s offensive or libelous (in which case it won’t.)