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Another Deutsche Bank Error Revealed: $30 Billion 2014 Gaffe

Updated on
  • German lender said to have mistakenly sent $30 billion in 2014
  • Funds sent to Macquarie by accident, returned the same day

A 28 billion-euro ($35 billion) payments error at Deutsche Bank AG in March wasn’t the first such blunder to befall the lender.

In March 2014, the German bank mistakenly sent 21 billion euros to Macquarie Group Ltd. as collateral for an over-the-counter derivatives trade, according to a person familiar with the matter who declined to be identified. That incident led directly to the introduction of fail-safes, though these didn’t catch the latest gaffe, the person said.

A Deutsche Bank spokesman confirmed the error, but declined to comment further. Macquarie Group declined to comment.

In both cases, the errant transfers were quickly spotted and the money returned, with no financial harm done. But the disclosure shows the scope of Deutsche Bank’s struggle with balky safeguards and the urgency of upgrading them. While the New York Fed warned the firm in late 2013 about persistent deficiencies in its processes, lapses have continued, demonstrating the challenge facing new Chief Executive Officer Christian Sewing as he seeks to return the bank to growth and placate U.S. regulators.

“How can you send $35 billion and not know about it?” said Francesc Rodriguez Tous, a lecturer in banking at Cass Business School in London, speaking about this year’s mistake. “This tells you a lot about the state of the IT systems in some of these big banks. It’s very difficult and expensive for them to upgrade these systems.”

The 2018 error was caused by the input of euros instead of yen, Sewing told shareholders in Frankfurt on Thursday as the lender announced it will cut a quarter of equities jobs and reduce overall positions by at least 7,000. The bank has “significantly improved controls” for large-volume payments to ensure such an error doesn’t happen again.

Human Error

The 2014 over-payment was a result of human error while using a collateral management system, the person familiar said. A control system that requires at least two pairs of eyes to look at transactions of a certain size also failed, they said.

The mistake was quickly identified and no financial harm caused, however the incident was brought to the attention of the German lender’s board and regulators, and triggered an internal audit, the person said.

Following the error, Deutsche Bank designed an enhanced “bear trap” system, whereby all payments over a certain size were subjected to increased scrutiny, according to the person. Yet that failed to prevent the more recent gaffe in March of this year.

Drawing Scrutiny

The German bank also ran into payment difficulty in June 2015 when a junior member of its Frankfurt-based foreign-exchange sales team mistakenly sent $6 billion to a U.S. hedge fund client. The bank recovered the money a day later.

Such failings have drawn scrutiny from U.S. regulators. In March, senior executives got a stern warning to act more urgently to fix lapses described in a series of settlements with the Federal Reserve over the past few years.

The lender’s troubles are reflected in its stock price. Deutsche Bank is the worst-performing member of the Stoxx 600 banks index this year, falling 35 percent year-to-date. In an interview last week, money manager Steve Eisman of “Big Short” fame recommended shorting the lender’s shares.

“We’re talking about a bank that has been in a very fragile state ever since the crisis and this just increases the pressure on them,” Rodriguez Tous said. “Internal controls are extremely important these days, and this just shows that Deutsche Bank really aren’t there yet.”

— With assistance by Gavin Finch

(Updates with job cuts in sixth paragraph.)
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