WSJ : Regulators Cite Risk-Control Deficiencies at Deutsche Bank

Regulators Cite Risk-Control Deficiencies at Deutsche Bank
Confidential Memorandum of Understanding Formally Ordered Bank to Make Far-Reaching Improvements

Deutsche Bank AG DBK.XE +1.34% is facing a barrage of criticism from U.S. regulators over what they say are weak reporting systems and risk controls, including under a confidential pact that formally orders the bank to make far-reaching improvements, according to people familiar with the agreement.

Through a corrective action called a "memorandum of understanding," the Federal Reserve Bank of New York and New York's Department of Financial Services are demanding that Deutsche Bank overhaul its technology and compliance procedures, and fix what the regulators describe as serious risk-management deficiencies, according to people familiar with the accord.

Separately, the U.S. Commodity Futures Trading Commission has repeatedly pressed Deutsche Bank to make changes to its systems, including fixing what the CTFC says are transaction-reporting problems which are seen as magnifying risks to the bank and potentially its trading partners, according to people familiar with communications between the CFTC and the bank.

The combination of the so-called MOU and the CFTC grievances poses stiff challenges to Deutsche Bank's management team, which is straining to address the regulators' concerns.

The MOU, which hasn't been previously reported, took effect in 2012 and is still in place, according to the people familiar with the agreement. It has required additional regulatory reviews and ongoing reporting requirements for the bank, the people say.

A primary focus of the regulators' attention is whether trading or reporting errors could lead to large, unexpected losses for the bank or its counterparties or rattle the market, the people familiar with the MOU said.

The New York Fed has set a mid-2015 deadline to correct a list of high-priority issues, people familiar with the matter said. The consequences of missing the deadline aren't known.

Deutsche Bank officials last month said the bank is "working diligently" to address technology and compliance issues, spending €1 billion ($1.34 billion) on "systems and controls" and assigning 1,300 people to the effort, including 500 new employees in the U.S. alone.

The German bank has already taken steps to improve systems that send real-time trade confirmations to counterparties and process end-of-day transaction reports, among other areas, people familiar with bank operations say. In June, the bank raised €8.5 billion by selling shares to investors, in part to contend with tougher U.S. capital requirements.

Privately, Deutsche Bank executives say tough talk from regulators is to be expected, and that other big banks face similar pressures behind the scenes in their nonpublic communications with government overseers.

Other bank executives and lawyers say U.S. regulators are more focused than ever on risk controls industrywide, and foreign banks are bearing a lot of the attention.

Still, the existence of the MOU with the New York Federal Reserve and New York state banking regulator suggests that Deutsche Bank's U.S. operations face a deeper level of formalized scrutiny than was previously known.

Last month, The Wall Street Journal reported that the New York Fed blasted Deutsche Bank in late 2013 over a litany of serious financial-reporting problems the regulator said have gone uncorrected for years.

In a December 2013 letter to Deutsche Bank executives, the New York Fed senior vice president responsible for supervising Deutsche Bank listed concerns ranging from data-entry errors to problematic valuations of collateral used to assess the riskiness of loans. The letter said the shortcomings amount to a "systemic breakdown" and "expose the firm to significant operational risk and misstated regulatory reports."

MOUs like the one involving Deutsche Bank aren't typically made public. Lawyers who have dealt with MOUs estimate that a half-dozen of the biggest banks might be subject to them at any one time, though they differ in severity and in many cases are resolved in a year.

An MOU can immediately affect a bank through extra reporting burdens and examinations. If regulators feel problems aren't resolved quickly enough, they can turn the action into a binding public order that curtails bank activities such as acquisitions or spending on dividends.

There's no indication that regulators plan to escalate the MOU with Deutsche Bank or restrict its business activities, and it isn't known how long the agreement will remain in place.

The CFTC isn't party to the MOU, the people familiar with the agreement said. The CFTC's concerns escalated in recent years as the regulator grew exasperated with inaccuracies in Deutsche Bank's trade reports and calculations of borrowing levels relative to client collateral, a key risk measure, according to people familiar with communications between the bank and the CFTC.

In the fall of 2013, CFTC staff briefed commissioners about what they characterized as a lack of sufficient progress by Deutsche Bank, the people said. Numerous areas remain unresolved.

In a separate move, the New York banking regulator is planning to install a monitor inside Deutsche Bank, and another one inside Barclays BARC.LN -0.16% PLC, in the U.S. as part of an ongoing investigation into potential manipulation of the foreign-exchange market, The Journal reported last week.

Agreements with the banks over how and when the monitors will operate are expected to be in place by September, according to people familiar with the discussions. Deutsche Bank and Barclays declined to comment on the monitors.

(TheDiplomat) Softbank can turn to more content or European operator for M&A



From: LAURENT CHEKROUN () At: Aug 7 2014 15:37:08
Subject: Fwd:(TheDiplomat) CEO Son has identified foreign markets as the key to Softbank’s fu

Failed T-Mobile Bid May Not Deter Softbank From New Acquisitions
CEO Masayoshi Son has identified foreign markets as the key to Softbank’s future.

Sprint Corp., which is majority owned by Japan’s mobile provider Softbank, dropped its bid to acquire T-Mobile U.S. on Wednesday. The news caused shares in all three companies to drop, as Softbank had planned the tie up between America’s third and fourth largest mobile carriers in order to compete with the country’s much larger rivals Verizon Communications Inc. and AT&T Inc. While the failed merger is a setback for Softbank and its acquisition hungry founder Masayoshi Son, there is speculation that news of a new Softbank deal may be forthcoming.

Although there was skepticism that a deal between Sprint and T-Mobile would be able to surmount regulatory and antitrust obstacles, the two were intent on pursuing the deal because of the economies of scale combining their networks would entail. With investment costs for expanding wireless networks quite absorbent, all parties involved saw it as a good way to quickly reach greater parity with the number one and number two carriers in the U.S. Softbank’s purchase of a majority stake in Sprint last year for $21.6 billion made it the world’s largest mobile provider, yet the company still wanted a greater share of the American market.

While Sprint and T-Mobile finally announced that they could not agree on how to equitably share the risk of the deal falling through during the lengthy regulatory approval process, which could have taken a year or two, Softbank in all likelihood will not be deterred by the setback. Son, the company’s CEO, is not expected to wait long before announcing a new investment plan, as he personally championed the acquisition of many of the more than 1,300 companies Softbank owns a stake in.

An analyst at SMBC Nikko, Satoru Kikuchi, says that “Softbank may already have another acquisition target,” and he expects Son to announce another deal this year, or maybe as soon as the end of this month. Son may even indicate his possible strategy while briefing investors during a quarterly earnings meeting this Friday. There is speculation that instead of trying to purchase another mobile provider, Softbank may try to expand its content, for instance its large mobile game presence, or grow into other media. Macquarie Securities analyst Nathan Ramler also expects that “SoftBank/Sprint have other ideas on how to gain the scale and momentum they want in the U.S. market.” Others speculate that Son will look to Europe, where “acquiring an operator in a high-ARPU [average revenue per user] Western European market could be next on the list,” according to Counterpoint analyst Neil Shah.

In fact, there is little to keep Son from looking abroad to expand Softbank’s reach. The Japanese mobile market is already saturated, and the company will find it difficult to take market share from its much bigger domestic rival NTT Docomo. As the Japanese mobile market eventually shrinks along with the population, Softbank in all likelihood will go the way of other Japanese corporate giants (specifically the auto industry), and expand its presence abroad in order to sustain its growth. This strategy has been show to allow Japanese companies to continue to grow and remain profitable. The downside for Japan is that this new international growth does little to contribute to the country’s perennially struggling economy.

(TheDiplomat) CEO Son has identified foreign markets as the key to Softbank’s fu


Failed T-Mobile Bid May Not Deter Softbank From New Acquisitions
CEO Masayoshi Son has identified foreign markets as the key to Softbank’s future.

Sprint Corp., which is majority owned by Japan’s mobile provider Softbank, dropped its bid to acquire T-Mobile U.S. on Wednesday. The news caused shares in all three companies to drop, as Softbank had planned the tie up between America’s third and fourth largest mobile carriers in order to compete with the country’s much larger rivals Verizon Communications Inc. and AT&T Inc. While the failed merger is a setback for Softbank and its acquisition hungry founder Masayoshi Son, there is speculation that news of a new Softbank deal may be forthcoming.

Although there was skepticism that a deal between Sprint and T-Mobile would be able to surmount regulatory and antitrust obstacles, the two were intent on pursuing the deal because of the economies of scale combining their networks would entail. With investment costs for expanding wireless networks quite absorbent, all parties involved saw it as a good way to quickly reach greater parity with the number one and number two carriers in the U.S. Softbank’s purchase of a majority stake in Sprint last year for $21.6 billion made it the world’s largest mobile provider, yet the company still wanted a greater share of the American market.

While Sprint and T-Mobile finally announced that they could not agree on how to equitably share the risk of the deal falling through during the lengthy regulatory approval process, which could have taken a year or two, Softbank in all likelihood will not be deterred by the setback. Son, the company’s CEO, is not expected to wait long before announcing a new investment plan, as he personally championed the acquisition of many of the more than 1,300 companies Softbank owns a stake in.

An analyst at SMBC Nikko, Satoru Kikuchi, says that “Softbank may already have another acquisition target,” and he expects Son to announce another deal this year, or maybe as soon as the end of this month. Son may even indicate his possible strategy while briefing investors during a quarterly earnings meeting this Friday. There is speculation that instead of trying to purchase another mobile provider, Softbank may try to expand its content, for instance its large mobile game presence, or grow into other media. Macquarie Securities analyst Nathan Ramler also expects that “SoftBank/Sprint have other ideas on how to gain the scale and momentum they want in the U.S. market.” Others speculate that Son will look to Europe, where “acquiring an operator in a high-ARPU [average revenue per user] Western European market could be next on the list,” according to Counterpoint analyst Neil Shah.

In fact, there is little to keep Son from looking abroad to expand Softbank’s reach. The Japanese mobile market is already saturated, and the company will find it difficult to take market share from its much bigger domestic rival NTT Docomo. As the Japanese mobile market eventually shrinks along with the population, Softbank in all likelihood will go the way of other Japanese corporate giants (specifically the auto industry), and expand its presence abroad in order to sustain its growth. This strategy has been show to allow Japanese companies to continue to grow and remain profitable. The downside for Japan is that this new international growth does little to contribute to the country’s perennially struggling economy.

>>> US Gapping down

Gapping down
In reaction to disappointing earnings/guidance/SSS: THOR -26.4%, ELON -17%, BWC -12.6%, GEOS -9.5%, RNDY -9.5%, ANAD -9.1%, IO -8.4%, CSOD -8.2%, COUP -7.6%, TXTR -6.6%, OSUR -6%, TNGO -5.4%, ATML -5.2%, ATRS -5.2%, FTK -5.1%, ZEUS -4.9%, PHMD -4.7%, ERII -4.6%, CLDX -4.5%, ZU -4.5%, SD -4.5%, NVAX -4.1%, GPOR -3.9%, IXYS -3.9%, DVAX-3.9%, DRTX -3.7%, WIN -3.5%, CPA -3.3%, EVC -3.2%, NIHD -3.2%, BDBD -3%, CECE -3%, LAMR -3%, RDUS -2.8%, SABR -2.8%, IDCC -2.7%, FRED -2.6%, ACAS -2.4%, GMCR -2.2%, TSE -2.2%, SRPT -2%, MWE -1.9%, DSCI -1.9%, AUXL -1.8%, HIL -1.6%, MYL -1.6%, HRC -1.6%, YY -1.5%, CXW -1.5%, PRSC -1.5%, TOPS -1.5%, AGYS -1.4%, CPE -1.3%, LPI -1.3%, PHX-1.3%, CGI -1.1%, NVTL -1.1%, CTB -1%, MPEL -1%, COST -1%.

Select metals/mining stocks trading lower: TC -2.2%, AU -1.5%, AU -1.5%, HL -1.2%, HL -1.2%, IAG -1.1%, HMY -1%, BHP -0.5%, MT -0.4%.

Other news: NYMX -8% (Paul Averback sold in a private transaction for financial planning purposes 470,600 common shares of NYMX for a total consideration of $2.4 mln), UMPQ -3.5% (announces secondary offering of 15 mln shares held by Thomas H. Lee Partners and Warburg Pincus), SHPG -1.8% (still checking), PT -1.5% (still checking), YY -1.5% (Shanghai -1.3% overnight), EBS-1.3% (submits Biologics license application to FDA for Anthrax Immune Globulin Intravenous), ASTM -0.9% (filed for a $20 mln common stock offering), RSPP -0.8% (announces pricing of 10 mln shares of common stock offering at $25.65/share).

Analyst comments: NUS -0.6% (downgraded to Neutral from Overweight at JP Morgan), AET -0.6% (downgraded to Neutral from Buy at Goldman), UNH -0.6% (removed from Conviction Buy list at Goldman), PERI -0.5% (downgraded to Hold from Buy at Needham), VOD -0.4% (downgraded to Mkt Perform from Outperform at Raymond James).

>>> US Gapping up

Gapping up
In reaction to strong earnings/guidance/SSS: SAAS +18.5%, LGP +18.4%, SSYS +12.4%, JACK +11.2%, HZNP +11%, MCP +10.8%, GDP +9.4%, TRMR +8.7%, MBI +7%, MIDD +6.7%, FOXA +5.2%, HAR +5.1%, TPH +4.8%, SUNE +4.8%, DXCM +4.7%, HIMX +4.6%, PKT +4.5%, LDRH +4.5%, EVHC +4.3%, ATHM +4.3%, CRIS +4.2%, QIWI +4.1%, DEG +3.8%, WTI +3.7%,BREW +3.5%, TROX +3.5%, EVRY +3.5%, TDC +3.4%, WWAV +3.3%, KERX +3.2%, DEPO +3.1%, MUSA +2.9%, CTL +2.9%, VNDA +2.9%, WEN +2.8%, JBT +2.6%, OFIX +2.5%, AFSI +2.5%, EXAR +2.4%, RIG +2.3%, RDN +2.3%, PACD +2.2%, DYN +2.2%, ZFGN +2.2%, AGU +2.1%, CSII +2%, ICE +2%, BKD +1.8%, TWO +1.8%, NLY +1.7%, TCAP +1.7%, AAON +1.6%,CDXS +1.5%, WR +1.5%, DNB +1.3%, TEG +1.3%, PMT +1.3%, RIO +1.3%, MRIN +1.2%, RGLD +1.2%, DUK +1.2%, ITMN +1.1%, ETP +1.1%, SN +1.1%, SYMC +1.1%, MNK +1.1%.

M&A news: CST +6.6% (CST Brands (CST) to acquire the general partner of LGP for $17 mln in cash and ~ 2.044 mln shares of CST common stock; CST authorizes repurchase of up to $200 mln of common stock ), NEM +0.8% (exec says company still open to merger with Barrick Gold (ABX), according to reports).

Select solar names showing strength: HSOL +2.9%, JASO +2.4%, TAN +2.4%, TSL +1.8%, CSIQ +1.7%, JKS +1.4%, YGE +1.2%, FSLR +0.7%.

Other news: LIME +203.8% (announced utility program contract win valued at $180 mln), OGXI +23.3% (announces appointment of John Bencich as VP and CFO), LGP +18.4% (CST Brands (CST) to acquire the general partner of LGP for $17 mln in cash and ~ 2.044 mln shares of CST common stock; CST authorizes repurchase of up to $200 mln of common stock ), MCP +10.8% (announces commitment for a $400 mln financing arrangement ), MDCO +10.6% (received FDA approval of Orbactiv (oritavancin) for the treatment of skin infections), CTRP +10% (co and Priceline Group (PCLN) expand partnership; Priceline to make $500 mln investment in Ctrip), GTXI +7.8% (filed for a ~22.156 mln share common stock shelf offering which includes ~10.18 mln shares of its common stock issuable upon the exercise of outstanding warrants, which are held by the selling stockholders), VJET +6.2% (following SSYS results), CTIC +6.1% (receives FDA Fast Track Designation for Pacritinib, a novel JAK2 Inhibitor for the treatment of myelofibrosis), XONE +5.9% (following SSYS results), PERY +4.9% (following late move higher on volume -- attributed to M&A speculation), DDD +3.4% (following SSYS results), WBAI +2.1% (enters into strategic partnership with China Mobile Limited (CHL)), DB +2% (peer Commerzbank trading higher after results), VMW +1.7% (announced authorization of stock repurchase program of up to $1 bln of its Class A common stock), BKS +1.5% (Google and Barnes & Noble (BKS) want to compete with Amazon (AMZN) on speedy book delivery, according to reports), MNK +1.1% (announced settlement of OFIRMEV (acetaminophen) injection patent litigation with Fresenius Kabi USA), BAC +0.9% (reports suggesting $16.5 bln DoJ settlement).

Analyst comments: AOL +3.3% (upgraded to Buy from Hold at Cantor Fitzgerald), CCL +2.1% (upgraded to Buy from Neutral at BofA/Merrill), ANR +1.6% (upgraded to Neutral from Sell at UBS), ARMH +1.3% (upgraded to Buy from Hold at The Benchmark Company), WAG +1% (upgraded to Hold from Sell at Cantor Fitzgerald)

>>> US Early premarket gappers

Early premarket gappers

Gapping up: LIME +127.4%, CST +14.8%, SAAS +14.7%, LGP +12.4%, LGP +12.4%, SSYS+11.5%, JACK +11.2%, CTRP +10.9%, MCP +10.8%, MDCO +10.8%, HZNP +9%, TRMR +8.7%,HIMX +8.2%, GTXI +7.8%, ATHM +6.8%, MIDD +6.7%, GDP +6.2%, PERY +4.9%, LPI +4.9%,PKT +4.5%, LDRH +4.5%, EVHC +4.3%, FOXA +4.3%, DXCM +3.8%, WTI +3.7%, BREW +3.5%,EVRY +3.5%, SUNE +3.3%, MBI +3.2%, DEPO +3.1%, MUSA +2.9%, CTL +2.9%, NRF +2.9%,RIG +2.7%, OFIX +2.5%, PACD +2.2%, DYN +2.2%, ZFGN +2.2%, CCL +2.1%, AGU +2.1%, CSII+2%, ICE +2%, CTB +1.9%, ETP +1.8%, BKD +1.8%, NLY +1.8%, TWO +1.8%, VMW +1.7%,TCAP +1.7%, HAR +1.6%, AAON +1.6%, BKS +1.5%, CDXS +1.5%, WR +1.5%, DB +1.3%, DNB+1.3%, TEG +1.3%, PMT +1.3%, MRIN +1.2%, RGLD +1.2%, SRPT +1.2%, MNK +1.1%, ITMN+1.1%, SN +1.1%, SYMC +1.1%, MNK +1.1%, WWAV +1.1%, TIBX +1%

Gapping down: THOR -27.7%, ELON -17%, BWC -12.6%, GEOS -11.5%, RNDY -9.5%, ANAD-9.1%, IO -8.4%, CSOD -8.2%, NYMX -8%, COUP -7.6%, TXTR -6.6%, OSUR -6%, ZU -5.9%,TNGO -5.4%, SD -5.2%, FTK -5.1%, ZEUS -4.9%, MPEL -4.7%, ERII -4.6%, CLDX -4.5%, CRIS-4.2%, ATML -4.1%, NVAX -4.1%, GPOR -3.9%, IXYS -3.9%, PT -3.6%, EVC -3.2%, NIHD -3.2%,HL -3.1%, BDBD -3%, CECE -3%, LAMR -3%, RDUS -2.8%, ACAS -2.4%, TSE -2.2%, EXAR -2%,SHPG -1.9%, AUXL -1.8%, CNVR -1.6%, GMCR -1.6%, HIL -1.6%, HRC -1.6%, UMPQ -1.5%,CXW -1.5%, PRSC -1.5%, YY -1.3%, CPE -1.3%, AU -1.2%, CGI -1.1%, NVTL -1.1%, WIN -1%, JD-0.9%