Deutsche Bank: Show of strength or a fiction? [FT]
Josef Ackermann was bullish. Even as the global financial industry was reeling, the Deutsche Bank chief executive began 2009 by boldly declaring that his bank had plenty of capital and would return to profit that year. In an investor call that February, Mr Ackermann said he would provide “as much clarity as we can on all the positions” to refute the suggestion that banks such as his had “hidden losses, and one day that will pop up, and then … we need more capital and the only way to go – to ask for capital – is to see the governments”. During the public relations campaign waged by Deutsche, its share price recovered from €16 in January to €39 at the end of April 2009, when it reported pre-tax profit of €1.8bn for the first quarter. But three of the bank’s former employees say the show of strength was based on a fiction. In a series of complaints to US regulators, two risk managers and one trader have told officials that Deutsche had in effect hidden billions of dollars of losses. “By doing so, the bank was able to maintain its carefully crafted image that it was weathering the crisis better than its competitors, many of which required government bailouts and experienced significant deterioration in their stock prices,” says Jordan Thomas, a former US Securities and Exchange Commission enforcement lawyer, who represents Eric Ben-Artzi, one of the complainants. Also unknown to the public until now is the assistance – entirely proper – provided to Deutsche by billionaire investor Warren Buffett’s Berkshire Hathaway group. In complaints to the SEC made in 2010-11, the employees allege that the main source of overstatement was in a $130bn portfolio of “leveraged super senior” trades.
Deutsche Bank Says Report That It Hid Losses Lacks Merit [DealBook]
Deutsche Bank said in a statement that “allegations of financial misstatements, which are more than two and one-half years old and were publicly reported in June 2011, have been the subject of a careful and thorough investigation, and they are wholly unfounded.” The bank said the charges had been made by “people without personal knowledge of, or responsibility for, key facts and information.” The bank said it would continue to cooperate with an investigation into the matter by the Securities and Exchange Commission.
The Deutsche allegations [Felix Salmon]
In case you can't get enough.
Starbucks to change accounting practices, pay more tax in UK [Reuters]
"We are making a commitment that we will propose to pay a significant amount of corporation tax during 2013 and 2014 regardless of whether our company is profitable during these years," Starbucks UK managing director Kris Engskov said in the transcript of a speech sent to Reuters.
PCAOB will issue report on problems with audits of ICFR [JofA]
Persistent problems related to audits of internal control over financial reporting (ICFR) have led the PCAOB to issue a report describing the four problems. The PCAOB will issue a Rule 4010 report to describe the results of recent inspections with regard to audits of ICFR, PCAOB Director of Registration and Inspections Helen Munter said Wednesday at the AICPA Conference on Current SEC and PCAOB Developments in Washington. The report is expected to be released next week, according to PCAOB spokeswoman Colleen Brennan. Rule 4010 reports are general summaries the board is allowed to publish regarding inspection findings, provided that the reports do not identify the firms involved in the quality-control criticisms. They are designed to help inform auditors about issues with regard to procedures their peers have performed.
HSBC might pay $1.8 billion money laundering fine – sources [Reuters]
HSBC Holdings Plc (HSBA.L) might pay a fine of $1.8 billion as part of a settlement with U.S. law-enforcement agencies over money-laundering lapses, according to several people familiar with the matter. The settlement with Europe's biggest bank – which could be announced as soon as next week – will likely involve HSBC entering into a deferred prosecution agreement with federal prosecutors, said the sources, who spoke on condition of anonymity. The potential settlement, which has been in the works for months, is emerging as a test case for just how big a signal U.S. prosecutors want to send to try to halt illicit flows of money moving through U.S. banks. An HSBC spokesman said: "We are cooperating with authorities in ongoing investigations. The nature of discussions is confidential."
Moss Adams acquires Bay Area accounting firm Mohler, Nixon & Williams [SFBT]
Moss Adams said it acquired Mohler, Nixon & Williams, bringing to the Seattle firm about 160 professionals and a greater presence in one of the most robust regional economies in the nation. Mohler's Bay Area operations include offices in San Francisco and Campbell. The combination, which was approved by the partners of both firms and is effective Jan. 1, underscores Moss Adams' decision to expand in California, as the Puget Sound Business Journal reported in October.