Is Deutsche Bank finally going to usher in the new era of transparency it promised investors over a year ago?

Highly unlikely.

I say this because it was Deutsche Bank’s management team that inspired the title to my book, Transparency Games.  As one member of their management team said to me

If we provided transparency, we would have to work much harder to make the same amount of money as we can with the current level of opacity.  Of course, we will eventually have to provide transparency, but we will try to delay this happening as long as possible.

Wow!

Rigging the global financial system behind a veil of opacity is simply a game bankers play to make more money.

Unfortunately, they are supported in this game by the financial regulators.

When it comes to the securities it sells, Wall Street has managed to capture the process by which disclosure is set.  As a result, Wall Street is freed up to sell high margin, opaque securities based solely on a valuation story it tells.

When it comes to disclosure by the banks themselves, Wall Street is protected by its captured regulators.  Rather than push for disclosure, the captive regulators conduct annual stress tests and pronounce the banks capable of withstanding financial armageddon.  Of course this finding rings hollow considering the regulators are worried about what would happen if Wall Street disclosed its current exposure details.

So what would we find if the Too Big to Disclose banks actually disclosed their current exposure details?  Deutsche Bank gave us a preview.

In keeping with that new openness, then chief executive John Cryan came clean about a €60bn portfolio of years-old trades that were costing the German lender about €500m a year.

Never previously disclosed, the revelation surprised analysts. Deutsche had done several clean-ups since the crisis – including one by Cryan just 17 months earlier – but had never mentioned the trades, some of which were over a decade old.

Could every other Too Big to Fail bank be hiding legacy bad assets?

One senior banker at a rival firm said all big banks have some long-dated derivatives on their books, and many are painful to hold – legacy interest rate and currency swaps struck years ago with sovereigns, infrastructure companies and to enable real estate deals, for example.

Clearly, they are all hiding their legacy bad assets.

So why did Deutsche Bank disclose this portfolio of legacy bad assets at all?

“It baffles me,” said one analyst who has been covering the bank for many years. “They promised more disclosure and then promptly shut up about it. You would think that they’d call it out every quarter, that they’d give you detail about what was going on. Then again, if it was just a smokescreen to basically flog €8bn of equity, then you would imagine you’d never hear of it again. I think you can draw your own conclusions.”

The bank is still playing Transparency Games!

A reason the Transparency Label Initiative was started was to bring an end to bankers playing Transparency Games.  Please note that even with the disclosure of this portfolio of legacy of bad assets, Deutsche Bank still does not qualify for a label indicating an investor could know what they own if they bought the bank’s unsecured debt or equity securities.  Buying these securities is not investing.  It is blindly betting the investor’s money.