Bloomberg reports top firm's one-day trading loss said to dwarf estimates

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'Such a high trading loss is off the charts'.

Traders at Deutsche Bank’s U.S. unit suffered a one-day loss in the first quarter that was 12 times what internal risk officers estimated for regulatory purposes it might lose on a typical day, according to a previously unreported May filing.

Deutsche Bank’s U.S. trading loss was offset by related gains in London, according to people with knowledge of the bank’s operations.

Bloomberg News reports that the U.S. loss - unrivaled in other banks’ first quarters and the unit’s own recent history - didn’t warrant a mention in Deutsche Bank’s earnings report. But it raises questions about U.S. regulators’ ability to have an accurate picture of a foreign bank’s operations if metrics such as value-at-risk, or VaR, show only a fraction of potential trading exposure. The issue is particularly stark at Deutsche Bank, which has increased capital levels at its U.S. business after multiple failed stress tests and cease-and-desist orders.

"Even a loss of two or three times VaR on a given day is unlikely. Twelve times VaR is extraordinarily unlikely," said Andrew Lo, a finance professor at MIT Sloan School of Management, speaking generally of trading losses.

"Such a high trading loss is off the charts," said Gregor Weiss, a professor at Leipzig University and an expert in financial risk management. "It’s definitely something a supervisor will look into."

Hit the link below to access the complete Bloomberg News article:

Wild Trading Day at Deutsche Bank Raises Questions on Risk

Ex-UBS Trader Loses Ban Appeal, Judges Call Case a ‘Tragedy’

 

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