The US Senate Permanent Subcommittee on Investigations this week said the bank had wittingly pushed high-risk assets known as collateralized debt obligations (CDO) that would help cause the United States’ worst economic collapse since the Great Depression.
“Our investigation found a financial snake pit rife with greed, conflicts of interest and wrongdoing,” said Sen. Carl Levin while presenting the 639-page report.
US officials documented how Germany’s largest bank assembled a $1.1 billion CDO fund known as Gemstone 7, then filled it with low-quality assets that its top CDO trader referred to as “crap” and “pigs” that needed to be sold “before the market falls off a cliff.”
“Deutsche Bank lost $4.5 billion when the mortgage market collapsed, but would have lost even more if it had not cut its losses by selling CDOs like Gemstone,” the Senate committee’s report said.
The committee also singled out US investment bank Goldman Sachs for helping perpetuate dealings leading to the unprecedented financial meltdown in 2008.
“Both Goldman Sachs and Deutsche Bank underwrote securities using loans from subprime lenders known for issuing high risk, poor quality mortgages, and sold risky securities to investors across the United States and around the world. They also enabled the lenders to acquire new funds to originate still more high risk, poor quality loans,” the report found.
Deutsche Bank said in a statement it had “significant losses” from its risky behaviour and therefore had not willingly misled investors.
“As the report correctly establishes, there were differing views about the US property market within the bank,” Deutsche Bank said. “These views, however, were completely conveyed to the (financial) markets.”