ECB examines allegations of Deutsche Bank understating balance sheet risks-report

Core Viewpoint - The European Central Bank (ECB) is investigating allegations that Deutsche Bank understated balance sheet risks and misrepresented its financial stability, based on claims from a former employee regarding the bank's netting practices [1][2]. Group 1: Allegations and Investigations - Dario Schiraldi, a former Deutsche Bank employee, has made claims that the bank's balance sheet was significantly impacted by aggressive netting and off-balance-sheet accounting techniques, which inflated capital and leverage ratios, misleading regulators and markets [3]. - The ECB has initiated a review of specific allegations made by Schiraldi in a letter sent in May, focusing on how Deutsche Bank applies capital regulations and manages collateral [2][4]. - Schiraldi's letter asserts that Deutsche Bank's netting practices led to an understatement of leverage exposures by over €200 billion ($231.5 billion) in its 2024 financial statements [3]. Group 2: Deutsche Bank's Response and Legal Context - Deutsche Bank has stated that it applies netting in accordance with relevant accounting standards and aligns with common industry practices [4]. - Schiraldi is also pursuing legal action against Deutsche Bank for €152 million related to a probe that contributed to his criminal conviction in Italy [4]. - The scrutiny of Deutsche Bank comes amid ongoing legal disputes involving Schiraldi and other former employees, who were previously convicted for false accounting and market manipulation but later acquitted [5]. Group 3: Internal Audit and Leadership Scrutiny - In a civil case in Frankfurt, Schiraldi claimed that Deutsche Bank's CEO, Christian Sewing, oversaw a flawed internal audit that was pivotal in the evidence leading to his conviction [6]. - Schiraldi has requested the ECB to investigate Sewing's role in the oversight of the audit report [6].