For over a decade, Deutsche Bank hid a $1.6 billion loss it racked up in 2008 on some municipal bonds it purchased in the wild markets that led to the 2008 market collapse. The loss was first reported on February 20, 2018.
Even more stunning than the lost decade was that the bank was able to convince the bank’s auditors that the value at which is was carrying the bonds was market value. It gradually acknowledged losses incrementally until its full position was finally liquidated after 9 years. The bonds were shuttled off to what the bank called its “noncore operations unit.” Internally, the process for this operation was “Project Marla.” Here’s a safety tip: If you have to refer to what you are doing as a project with a goofy name, you may have crossed a few ethical lines. See FBI efforts to investigate a presidential candidate and then a president as “Crossfire Hurricane.” Regardless of political views, the FBI seeking to remove a president through wiretaps and tries smacks of something a little above their pay grades.
All during this period, the bank was raising capital without disclosure of the valuation issues. Upon liquidation, the bank, its audit committee, and auditors debated whether it should restate its financials for those 9 years. Somehow they all agreed,”Let’s just move along without doing all of that.” They labeled it all “inline with accounting standards.”
Think of how many people at the bank were aware of this activity, and yet, for over 9 years, no one said a word. Now that’s a culture problem.