Deutsche Bank AG, Germany’s biggest lender, said it adjusted how it accounted for a transaction with Banca Monte dei Paschi di Siena SpA after a regulatory probe uncovered information that changed the nature of the deal.
“We adjusted the accounting in line with new facts that we were made aware of in the course of the investigation,” Deutsche Bank Chief Financial Officer Stefan Krause told reporters in Frankfurt today. He said he couldn’t elaborate because the investigation by Bafin, the German regulator, is still pending.
Krause said the new accounting treatment of the deal, a 2 billion-euro ($2.7 billion) repurchase agreement backed by Italian government bonds, won’t affect Deutsche Bank’s income statement, nor its balance sheet.
Deutsche Bank and Monte dei Paschi, Italy’s third-biggest bank, agreed in December to terminate the transaction 17 years early. The deal, dubbed Santorini, came to light a year ago, when Bloomberg News disclosed how the 2008 contracts masked Paschi’s mounting losses from regulators and investors. Santorini hid a 430 million-euro loss from an older contract with Deutsche Bank, according to Monte dei Paschi, and the bailed-out Italian lender has lost more money since then because it made a losing bet on the country’s government bonds.
A spokesman for Bafin declined to comment.
Deutsche Bank incorrectly accounted for a derivative transaction with Monte dei Paschi and provided false information to Bafin and other authorities, Welt reported on Jan. 7, citing a letter from the regulator.
German regulators were reviewing how Deutsche Bank kept the Monte dei Paschi deal and other similar repos off its own balance sheet, two people familiar with the deals said in August, a month after Bloomberg News reported the practice.
Today, Krause said its original accounting of the deal was confirmed by its auditor KPMG and by Bafin.