ECB Found Deutsche Bank Risk Management Weakness, Sole Says

A European Central Bank inspection of Deutsche Bank AG’s risk controls found deficiencies in derivatives and complicated financial bets that raise questions about pricing processes at the German lender, Il Sole 24 Ore reported.

The review, which started a few months ago and recently ended, found that the bank’s risk management systems were not sufficiently integrated or strong enough to challenge client-facing staff, the Italian newspaper said, citing a person it didn’t identify. Inspectors turned up weaknesses in contracts ranging from life insurance to climate-related securities, Sole said.

A spokesman for the bank declined to comment when contacted by Bloomberg. An ECB spokesman declined to comment on individual banks.

Chief Executive Officer John Cryan has reduced Deutsche Bank’s stock of hard-to-value and illiquid assets to strengthen the company’s finances and make them easier for investors and supervisors to understand. Yet concerns about capital levels continue to dog the bank as it prepares to tap shareholders for about 8 billion euros ($8.6 billion), its fourth infusion since 2010.

As a result of the inspection, the ECB’s supervisory arm has set up a special working group to provide better visibility on the valuation of derivatives, according to the Italian newspaper. A final report on the inspection is still under review at the ECB, Sole said.

The Sole article also alleged that the ECB’s reviews of Deutsche Bank and Banca Monte dei Paschi di Siena SpA show it has a “lopsided” approach to banking supervision.

The ECB has a strong track record of being intrusive with banks to identify and assess key risks, the spokesman said in an emailed response to questions from Bloomberg News. He added that the ECB applies this approach fairly and evenly to all banks, irrespective of their location or nationality.

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