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The European Central Bank is reviewing allegations that Deutsche Bank underplayed the risks in its balance sheet and presented a misleading picture of its financial strength.
Europe’s top banking watchdog is examining claims made by a former employee who is suing the bank, including allegations about Deutsche’s use of so-called netting practices, people familiar with the matter told the Financial Times.
The ECB has in recent months made enquiries to Deutsche about its netting practices, the people said, as part of an assessment of the bank’s application of capital rules and collateral treatment.
Netting is a process of consolidating and offsetting multiple financial obligations that banks use to reduce credit risk exposure and the calculation of their regulatory capital requirements.
The ECB’s enquiries were part of a standard review of several lenders, one person familiar with the process said.
However the ECB has since started to review allegations set out in a letter sent by the former Deutsche employee Dario Schiraldi to the central bank last month.
The ECB has not yet decided whether to take any formal action in response to Schiraldi’s allegations, such as opening an investigation, the people added.
Schiraldi alleged in his letter to the ECB that Deutsche’s balance sheet was “materially affected by aggressive netting and off-balance-sheet accounting techniques”.
He said that Deutsche’s use of netting had inflated the bank’s capital and leverage ratios and presented “a misleading picture of the bank’s financial soundness to regulators and markets alike”.
In the letter, Schiraldi alleged that this practice had led to the “apparent understatement of leverage exposures by over €200bn” in the German lender’s 2024 financial statements. Deutsche’s total leverage exposure at the end of September was €1.3 trillion.
Deutsche said: “We apply netting in accordance with the relevant accounting standards and generally aligned with common industry practice.” The ECB declined to comment.
Schiraldi is separately suing his former employer for €152mn over a probe the bank conducted that contributed to his criminal conviction by an Italian court, which was later overturned.
Deutsche had a Common Equity Tier 1 ratio — a key measure of capital strength — of 14.5 per cent at the end of September, ahead of its own internal target and its minimum regulatory requirement.
Deutsche and the ECB separately clashed last year over concerns the German lender may be underestimating how many loans would sour, the FT previously reported.
The latest scrutiny comes amid ongoing legal tussles between Deutsche, Schiraldi and five other former employees who were also handed criminal convictions in Italy that were later overturned on appeal in 2022.
The bankers were sentenced to up to four years and eight months in prison for abetting false accounting and market manipulation in a scandal involving Italian bank Monte dei Paschi di Siena. They never served any jail time.
In the civil case filed in Frankfurt, Schiraldi claimed that Deutsche’s chief executive Christian Sewing presided over a flawed internal audit, which formed an important part of the evidence used to convict Schiraldi — and the other five bankers — in Italy in 2019.
In his recent letter to the ECB, Schiraldi also asked the watchdog to investigate Sewing’s role in overseeing the audit report.
Deutsche said: “As we have previously stated, Deutsche Bank considers the legal claims by former employees in this matter to be entirely without merit and will defend itself against them robustly.”