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Banking Giant Accidentally Loses $35 Billion

Sad

Deutsche Bank AG, Germany’s largest bank, is in deep trouble. Decades of inept management and mounting losses have led to a severe decline in investor confidence, and the stock has taken a beating. Even worse is the fact that fixing the damage is likely to take many years, if not decades.

In February, the giant lender posted its third consecutive annual loss of 497 million euros after taking a tremendous 2.2-billion-euro ($2.75 billion) loss during the fourth quarter alone. Consequently, the stock tanked wildly, losing 37 percent of its value in the year-to-date and nearly 70 percent over the past five years.

Deutsche Bank AG 5-Year Change

(Click to enlarge)

Source: CNN Money

Wall Street's Laughing Stock

While that much is readily evident, it's the behind-the-scenes events at the bank that lead investors to doubt whether it will survive long enough to tell its sad tale. Judging by the way it's been groping about blindly, DB appears to have turned into a zombie under the influence of a kamikaze parasite.

DB stock is down another odd 7-percent after an exposé by the company's management that it mistakenly transferred a cool 28 billion euros ($35 billion) to Deutsche Boerse AG’s Eurex clearinghouse after its electronic system wrongly input euros instead of yen. A single yen is currently changing hands at about 120 to the euro so the multiplier effect must have been huge.

The magnitude of the amounts involved in that transaction are shocking, especially when you consider they represent considerably more than DB's current market cap of $28 billion. Related: Asian Markets Up Amid Confusion Surrounding North Korean Summit

But what's particularly unnerving about that episode is that it was not the first time that it happened at the bank. In March 2014, the giant lender suffered a similar gaffe after sending 21 billion euros to Macquarie Group as collateral for a derivatives trade.

To be fair, the bank likely suffered little direct financial damage from the "fat-finger" transfers as CEO Christian Sewing dutifully pointed out to investors. What he, however, failed to conscientiously mention was the devastating reputational damage after the bank once again became Wall Street's laughing stock and the billions of dollars that revelation nicked off the bank's valuation in the stock market.

Fat-Finger Orders

Deustche Bank says it has significantly improved controls for large-volume payments, though the fact that the "fail-safes" it introduced after the 2014 episode failed to catch the latest is worrisome. It also underlines how difficult it is for these giant banks to upgrade their legacy IT systems.

DB, though, can take comfort in the fact that fat-finger orders are not a preserve of the bank alone. The largest fat-finger order on record was by another bank, UBS, with the Swiss firm ordering a staggering $3 trillion in bonds from a video game maker.

Another bad one took place in Japan in 2014 by an unknown trader. The 40 defective over-the-counter orders worth 67.78 trillion yen ($617 billion) were luckily detected and canceled before they could be executed.

While many of these rogue trades are flagged before they get filled, a few clunkers do sail through.

In another episode involving the yen, a share trader at Mizuho Bank lost his company 27 billion yen ($247 million) after keying in wrong order figures that ended up being filled despite the fact that the amount ordered was more than 40 times the actual share float by the company.

Then there's this comedy gold that led to a global gold selloff and likely cost traders billions of dollars.

By Alex Kimani for Safehaven.com

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