An official at Deutsche Bank said the Financial Services Authority was notified of the discrepancies as soon as they were discovered, adding that the bank will complete its investigation into the matter this week, and Rustagi would be given an opportunity to appeal. “It had been going on for maybe a couple of months, but we’re not sure as to why he did it,” the official said. “It was an isolated occurrence, and all the positions that had been marked have since been corrected.” Rustagi declined to comment on the matter.
The head of structured credit at a leading inter-dealer broker who traded with Rustagi said the discrepancies came to light in the third week of December, allegedly while Rustagi was away for his holidays. “His colleagues obviously marked the book and established the fact that the mark-to-market positions on the book weren’t as he said they were,” the broker said.
But he believed a loss of £30 million was small compared with the total size of Deutsche Bank’s CDO book. He added: “Deutsche Bank hasn’t been trading anything unusually in the market before or since the discovery of the inconsistencies. But clearly it had big positions marked incorrectly.”
Another senior broker questioned whether the loss had any connection to the departure of Mark Stainton, who left Deutsche Bank, where he specialised in correlation and exotic credit trading as co-head of its CDO business, to head the energy trading unit at Citadel Investment Group, a Chicago-based hedge fund, late last year. Stainton, however, who was on holiday, said he had known nothing about the loss until he learnt of it today.
Deutsche Bank bonuses will be announced in mid-February.