Bad bet Deutsche loses $1.6 billion on bond portfolio insured by Buffett: WSJ

Buying $140 million in insurance from Berkshire Hathaway did little to protect Germany’s largest bank from its poor investment decision.
Quelle: dpa
Keep walking. No one will notice the loss.

A more than $1.6 billion ($1.8 billion) loss on municipal bonds led to discussions among top Deutsche Bank executives about when to mark down the loss, according to the Wall Street Journal. They eventually poured the portfolio into a bad bank before selling it outright.

Frankfurt-based Deutsche reportedly bought a portfolio of about 500 bonds in 2007 for $7.8 billion and later insured the portfolio with a credit default swap from Berkshire Hathaway, an investment multinational controlled by American billionaire Warren Buffett, for an additional $140 million.

The Germans then watched as the portfolio crashed along with global markets and economies the following year. Deutsche first hesitated to revalue the portfolio, according to the paper, but finally folded the bonds into a bad bank in 2012 at the behest of auditor KPMG. It sold the bonds in 2016, realizing the $1.6 billion loss.  

Another day, more bad news

“This transaction was unwound in 2016 as part of the closure of our non-core operations,” a Deutsche spokesperson told the paper. “External lawyers and auditors reviewed the transaction and confirmed it was in-line with accounting standards and practices.”

Deutsche executives discussed whether or not they had acted properly until last year, though the bank is confident it did nothing wrong.

The report is just the latest downer for Deutsche Bank. The company’s stock was little changed on Thursday afternoon at €7.68, not far above its record low of €6.68 plumbed in late December.

The lender has posted three years of losses and gone through as many CEOs in six years following a series of regulatory blunders in the US and Europe.

Andrew Bulkeley is an editor in Berlin with Handelsblatt Today. To contact the author: [email protected]