The knives are out in Washington, and bankers from London to the Arabian Gulf should beware of the new financial belligerence in the American capital. There’s no telling who might be next.
Full square in the firing line at the moment is Deutsche Bank, once the European banking champion but now – due to a combination of its own past mistakes and a new approach towards valuing financial assets – touted in some quarters as the next Lehman Brothers.
That is probably going too far, but there is no doubt the German giant faces big problems, especially with its international investment banking operations, which might be worth a good deal less than they are shown to be at in Deutsche’s balance sheet.
It was international operations too that got Deutsche into its most recent and serious trouble, in the shape of a US$14bn fine the US department of justice says it is considering for mis-selling of mortgage-backed securities (those again).
The scale of the intended fine shows the aggression that is running through DC. It’s hard to see, in comparison with other banks (Americans included) that have attracted the DoJ’s ire, what Deutsche has done to justify such a savage penalty, virtually equivalent to its market capitalisation.
Perhaps it’s a bit of tit-for-tat by the Americans for the Europeans’ treatment of Apple in Ireland, or perhaps it’s just an opening gambit by the DoJ to extract as high a final settlement as possible.
Whatever, the signs are that Deutsche is not going to roll over. There was talk last week that it might put up $5bn to settle, but from recent conversations I’ve had with Deutsche executives it now looks as though the German stance is hardening: $2.5bn, $3bn tops, is the suggestion.
Any eventual deal will be played out against the backdrop of the US presidential election, so the issue will remain in the public, and political, arena for some time to come.
But it is not just Deutsche in the Americans’ line of fire. Several other European banks are also in their sights. The DoJ is said to be looking at a mega-settlement from Barclays, Credit Suisse and Royal Bank of Scotland as the price for continuing participation in the dollar system.
Beyond Europe, there are also worrying signs that the Americans are looking to rake in cash virtually anywhere in the world.
This is not just the impression left by the Justice Against Sponsors of Terrorism Act (Jasta), passed so controversially by Congress last week, although this has sent shivers through the Middle East financial system, with the possibility of freezes on Saudi assets in America and restrictions on investment there.
Jasta does not specify Saudi Arabia as its target, so in theory any country deemed to have involvement in 9/11 could come under the act’s provisions.
Bankers in Dubai report new interest by the US financial authorities on the nature of corresponding banks, on anti-money-laundering arrangements and, especially, on possible violations of still-existing Iranian sanctions.
The US is on the financial offensive. It could be time to run for cover.
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