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The operations of Deutsche Bank in the US were "troubled" by the Fed



The Federal Reserve has renamed the widening US operations of Deutsche Bank AG to "troubled conditions," a rare rebuke to a large financial institution that, in the opinion of those familiar with the matter, contributed to restrictions on its operations.

The downgrade of the Fed, which took place about a year ago, is a secret and has not been published. Restless state – one of the lowest terms used by the Fed – has influenced the Bank's move to reduce risks in areas such as trading and lending to clients.

It also means that the bank had to make decisions about the hiring and dismissal of senior US managers with Fed overseers. Even the reallocation of work responsibilities and the severance pay for certain employees require the approval of the Fed, so the people.

The Fed's main punitive action has flattened its relationship with other regulators, including US federal deposits, by Insurance Corp., which has pressured the lender to improve controls and oversight, said people who are familiar with these relationships.

The US system of valuation of banks is called "CAMELS", which stands for capital adequacy, asset quality, management, income. Liquidity and sensitivity to market risks. The topline rating of a bank from 1

to 5 takes into account all these categories. The best rating is "1". Banks with problems are rated either "4" or "5". The values ​​are not published.

A downgrade by the Fed has also landed the FDIC-insured subsidiary of the bank, Deutsche Bank Trust Company, America, on the list of vulnerable institutions of the FDIC "problem banks," according to persons who are familiar with the matter. The FDIC does not give detailed information about the membership in the list, but says, how many banks stand on it and what value their assets have in common. Total assets in the list increased $ 42.5 billion in the first quarter; Deutsche Bank Trust Company Americas, the bank's well-capitalized American deposit unit, had assets of $ 42.1 billion as of March 31, according to regulatory filings.

Banks are added to the list after getting a "4" or "5" overall rating from their primary regulator. How these banks fare later shows how companies sometimes recover from tough ratings.

Of the 1783 institutes designated as "problem banks" between January 2008 and March 2017, 854 recovered and discarded the label, 523 failed, 294 merged and 112 remained in issue, the agency said in its history of the financial crisis.

A Fed spokesman declined to comment. A spokesman for the FDIC declined to comment.

A spokeswoman for Deutsche Bank said the bank did not discuss "specific regulatory feedback". She said that Deutsche Bank AG, the parent company, is "very well capitalized and has significant cash reserves". The relevant US subsidiaries are "DB USA Corp., Deutsche Bank Trust Corporation and Deutsche Bank Trust Company Americas, our principal US banking subsidiary, which has a very solid balance sheet as stated in our annual and quarterly regulatory filings." Bank spokesperson said: "As we have already pointed out, our regulators have identified different areas to improve our control environment and infrastructure We are very focused on remedying identified vulnerabilities in our US operations. "

The issues that led to downgrading and complexity in day-to-day decision-making and long-term planning are one of Deutsche Bank's biggest challenges. The bank is struggling to reduce costs and risks in a huge market where, according to the bank's executives, it must be present in order to maintain its global reach.

But the barriers to making money in the US have become more difficult Legal settlements and speeded to improve outdated technology. The additional review, along with the Fed's "troubled" label, brings with it a headache that other banks are not struggling with.

For Deutsche Bank, the effects of the disappointing Fed remain in recent decisions under new Chief Executive Christian Sewing To distance credit and merchant businesses, some people said close to the bank

. Sewing was named CEO at the beginning of April with the resignation of John Cryan after three consecutive annual losses. The new German boss said last week that Deutsche Bank will reduce thousands of jobs and repeat plans to reduce the global equity and other investment banking activities of the lender.

The reasons for the risk pullback were set last year when Deutsche Bank gave in. Fed regulators were angered by the inadequacy of systems and controls and the slow pace of progress that was familiar with internal discussions.

The business activities of Deutsche Bank in the US triggered regulatory noise for many years. They received a hefty accusation from the New York Fed in 2014 for repeated financial reporting failures and lack of follow-up on the promised corrections,

Deutsche Bank's US operations failed in 2015 and 2016 due to the Fed's stress tests, and the year In 2017, the subject of several Fed enforcement measures for perceived Lax checks related to currency trading, money laundering and Volcker rules was trade restrictions. The Deutsche Bank has also paid billions of dollars to settle allegations from investigations by the US Department of Justice.

Last year, the Fed repeatedly raised concerns about the banks' ability to measure customer financial exposure and the valuation of collateral that secured loans (19659004) Some of the Fed's criticisms have suggested to Deutsche Bank executives that they need to the so-called repo financing – short-term loans that are typically based on repurchase agreements – withdraw to other clients and clients to hedge funds other banks. At the investment bank, some executives complained privately last year that repo exposures were less risky than the Fed's and represented a debate on how much to opt back, people in charge of internal discussions said.

his criticism of the financial documentation of Deutsche Bank. The auditors expressed their frustration with what they described as the bank's inability to calculate its exposure to banks and other clients in certain jurisdictions at the end of each day, and over time, some people said.

Write to Jenny Strasburg at jenny.strasburg@wsj.com and Ryan Tracy at ryan.tracy@wsj.com


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