This week word leaked out the FDIC put Deutsche Bank’s US subsidiary on its list for problem banks.  The Fed cited it for troubled conditions.  And what exactly did Deutsche Bank do to merit this response by regulators?  Apparently its back-office information systems are so bad it cannot show the actual level of risk at the subsidiary.

I cannot believe I just wrote that sentence about a bank that routinely passes the annual strenuous stress tests administered by the central banks.

Perhaps DB’s incoming boss, Christian Sewing can shed some light on this in his message to Deutsche Bank’s stakeholders.

But as we clearly noted in our annual report in March 2017, Deutsche Bank has been engaged in remediation work to strengthen our internal control environment and infrastructure and to address concerns that have been identified both internally and by our regulators….

As you know, we have made progress in remediating them in the past year. We’re not yet where we want to be, but we’re steadily getting there.

Shorter:  DB is flying blind with no fix in sight.

But have no fear, because

Financially, the US subsidiaries mentioned in the media are all very sound. For example, our principal US banking subsidiary, Deutsche Bank Trust Corporation Americas, or DBTCA, has a core capital ratio of 98.5 percent. At the end of the first quarter of 2018, it held 75 percent of its 42.1 billion-dollar balance sheet in cash. The problems we face are not a question of financial soundness, but involve identified infrastructure and control deficiencies, which we are tackling.

But if it were a question of financial soundness,

At Group level, our financial strength is beyond doubt. …

— Deutsche Bank Group’s common equity tier 1 ratio of 13.4 percent is higher than many peers and is well above the regulatory requirement of 10.65 percent.
— Our liquidity reserves were 279 billion euros at the end of the first quarter – close to their all-time highs.
— Our credit and market risk levels have rarely been so low. Speculation that we might be exposed to substantial hits from the political uncertainties in Italy is completely unfounded.
— And last but not least: our funding plan for this year is well advanced, and at very favourable rates. We’re very well positioned to react to excessive movements in debt markets.

Forgive me, but if a bank’s information systems are so bad its regulators cite them as a cause for concern, why would we think its accounting systems show its true condition?

Obviously, we wouldn’t.

[Prior to the latest action by the bank regulators, the Transparency Label Initiative had reviewed Deutsche Bank’s disclosures and determined it does not qualify for a label indicating an investor could know what they own if they buy one of its unsecured debt or equity securities.]