Courtesy of Pam Martens.
Satish Ramakrishna of Deutsche Bank
Anshu Jain, Co-CEO of Deutsche Bank, was not having a good day yesterday. First the oath-taking, subpoena-issuing Senate Permanent Subcommittee on Investigations released a detailed email to him from William Broeksmit, the 58-year old former Deutsche risk executive alleged to have hanged himself in his London home on January 26. By the end of the day, someone had leaked to the Wall Street Journal a deeply critical letter of Deutsche Bank from the New York Fed which said that “The size and breadth of errors strongly suggest that the firm’s entire U.S. regulatory reporting structure requires wide-ranging remedial action.”
What the U.S. Senate’s Permanent Subcommittee on Investigations was taking testimony on yesterday, however, was far from an “error” committed by Deutsche Bank. Both Deutsche Bank and Barclays were shown, through emails, marketing materials and witness testimony, to have set up elaborate schemes to effectively loan out their balance sheet to hedge funds to conduct billions of trades each year in trading accounts under the bank’s name, deploying massive leverage that is illegal in a regular Prime Brokerage account for a hedge fund client.
The banks got paid through margin interest, fees for stock loans for short sales, and trade executions. The hedge funds got paid not only from trading profits but also through a tricked up “basket option” offered by the banks that magically turned millions of short-term trades into long-term capital gains, saving the hedge funds about half the rate of taxes owed on the short-term trades, some of which lasted only minutes.
One hedge fund, Renaissance Technologies, was said by Senator John McCain to have ripped off the U.S. taxpayer to the tune of $6 billion in unpaid taxes on long-term capital gains.
Broeksmit’s name first emerged in yesterday’s Senate hearing as Senator Carl Levin, Chair of the Subcommittee, was questioning Satish Ramakrishna, the Global Head of Risk and Pricing for Global Prime Finance at Deutsche Bank Securities in New York. Ramakrishna was downplaying his knowledge of conversations about how the scheme was about changing short term gains into long term gains, denying that he had been privy to any conversations on the matter.
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