If I were to recommend that you loan money to a foreign bank with no collateral to protect your loan and told you that the foreign bank had lost billions of dollars over the last several years and had misled investors during the last financial crisis, would you make that loan? Strangely, in the name of making money for Wall Street, many U.S. financial institutions have made this recommendation to thousands of investors. These investments are actually loans to Deutsche Bank have that have lots of fancy names, but are generally categorized as structured notes. The specifics of this troubling scenario are described below.
DEUTSCHE BANK APPEARS ON A DOWNWARD TREND
Germany’s largest bank, Deutsche Bank, posted a $2 billion-dollar loss in the final quarter of 2016 and has lost close to $10 billion dollars over the last two years. Also, Deutsche Bank’s honesty and integrity are in question in light of its recent $7.2 billion payment for misleading investors in its sale of residential mortgage-backed securities. Specifically, the U.S. Justice Department, along with federal partners, entered into a $7.2 billion-dollar settlement with Deutsche Bank resolving federal civil claims that Deutsche Bank misled investors in the packaging, securitization, marketing, sale, and issuance of residential mortgage-backed securities (RMBS) during the financial crisis. The payment seems to reflect the fact that Deutsche Bank misled US investors on a grand scale regarding investments. Here is a link that details the wrongdoing of Deutsche Bank.
Despite the foregoing, many U.S. investment professionals recommended that U.S. investors buy billions in Deutsche Bank structured notes. This means that U.S. investors, especially those looking for bond alternatives, are loaning lots of money to Deutsche Bank on an unsecured basis (i.e. loaning lots of money to Deutsche Bank without any collateral from Deutsche Bank to secure these loans).
SOPHISTICATION FOR OBFUSCATION
These structured notes have very sophisticated names, so you may not even realize you have them in your portfolio. Click here for a list containing the specific names given to these products. Although Deutsche Bank continues to state that these products are “very flexible instruments to pursue an individual risk management”, Vernon Litigation Group asserts they are closer to bonds issued by a struggling foreign bank without the liquidity of bonds because and there is no secondary market to easily sell these products before maturity.
To put this in perspective, Deutsche Bank is much, much larger than Lehman Brothers was when it failed during the financial crisis. What you might not know about Lehman is that retail investors were holding over a billion dollars in structured notes backed by Lehman when Lehman failed. As a result, those investors lost most of their money in a single day.
ESSENTIALLY LOANING MONEY WITH NO COLLATERAL PROTECTION
To be clear and at the risk of being redundant, if you own a structured note backed by Deutsche Bank, it essentially means that you are loaning your money to a wildly unprofitable and arguably dishonest foreign bank with no collateral protection if this German Bank is unwilling or unable to pay you back.
ABOUT VERNON LITIGATION
Vernon Litigation Group is a law firm that represents clients in courtroom litigation, arbitration, including FINRA arbitration, and mediation throughout the United States. Our lawyers have collectively represented thousands of investors in securities arbitration and litigation claims nationwide and recovered many millions of dollars from purported financial professionals and financial institutions, both large and small. Please contact us to discuss your rights if you believe a Wall Street firm or other investment firm has failed to act in your best interests or otherwise abused your trust. For more information, visit our website at https://vernonlitigation.com/ or contact Vernon Litigation Group by phone at (239) 319-4434 or by e-mail at info@vernonlitigation.com to speak with Vernon Litigation Group.