Wednesday, March 26, 2008

Touchy, feely, crunchy Deautsche Bank

(FT Alphaville) Dr Josef Ackermann and his colleagues around the management boardroom table want you to know that Deutsche Bank’s annual report, published on Wednesday, underlines this institution’s commitment to providing transparency for all those who have a stake in Deutsche Bank’s success: “our shareholders, our clients, our people, and the wider communities in which we operate.”

All of whom should now sit down.

The Financial Report includes detailed information on financial instruments according to IFRS 7 requirements. This encompasses risks arising from financial instruments (Note 37, pages 212 — 227) as well as information on how the fair value of financial instruments is determined (Note 12, pages 155 — 162). Note 12 includes information on those instruments which are valued using valuation techniques with unobservable parameters, frequently referred to as “level 3″ assets.

Deutsche Bank also provides added transparency on those of its risk positions that have been principally affected by the crisis in the credit markets, including its exposures to subprime CDOs, other US mortgage businesses, monoline insurers, commercial real estate and leveraged finance (pages 17 — 20). The Group also provides a detailed description of its off-balance sheet exposures arising from arrangements with unconsolidated special purpose entities (SPEs, pages 27 — 35). This includes information on exposures to Group-sponsored and third-party asset-backed commercial paper (ABCP) conduits.

The entire report (373 pages) is here or you can pick ‘n’ mix here.

Shortcut - download the full pdf and then zoom to page 85. Scroll down…through the guff about 2007 being a year of two halves…keep going…keep going…through the CDO subprime stuff…yes, it is very clearly set out, which is refreshing…through the “other US mortgage business exposure”… yes, €8bn of Alt-A, but they have been busy hedging this…through monoline exposure (€1.1bn)…yes, commercial real estate is eye-catching at €17bn, but this is a big bank and write-downs are small…so far…there’s more on that in the Risk Report…Oh my!…leveraged finance… €36bn…€20bn of that unfunded, €1.3bn write-down immediately, more write-downs on the way…

Off-balance sheet arrangements kick off on page 110…through ABCP conduits (€4.8bn still ‘warehoused’)…note the stuff about the Canadian ABCP conduit (did you know about the Montreal Accord - a standstill agreement last year between 22 conduits, which is now being “re-agreed on a daily basis”?!)…eh?..

We could go on - at length. Suffice to say that Deutsche is no longer sure that it will meet profit expectations this year. Its shares were off 2 per cent in early trade in Frankfurt.

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