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As early as October 2007, Deutsche Bank disclosed to the investment community that the bank was experiencing substantial difficulties as a result of the “subprime” crisis. On October 31, 2007, the company disclosed that “charges of € 603 million (net of fees) were taken against leveraged loans and loan commitments, over and above charges already taken in the second quarter 2007. Reflecting these charges, Origination revenues were negative € 120 million.
The bank also further disclosed that its “Performance suffered primarily from the rapid loss of liquidity in credit markets from August onwards. The substantial market turbulence caused breakdowns in relationships between credit securities and hedging instruments such as derivatives based on broad market indices. These together with the loss of liquidity negatively impacted credit trading positions in relative value trading, CDO correlation trading and residential mortgage-backed securities, even after taking into account significant gains on offsetting hedge positions.” According to the bank, “Difficulties in the U.S. residential mortgage market may persist, impacting the wider economy.”
Thereafter, in February 2008, Deutsche Bank announced that it anticipates first-quarter 2008 mark-downs in the region of € 2.5 billion in key areas, and that its “results for the fiscal year 2007 included losses relating primarily to the write down in the fair values of our trading activities in relative value trading in both debt and equity, CDO correlation trading and residential mortgage-backed securities and the leveraged loan book including loan commitments. We continue to have exposure to these markets and products and, therefore, could be required further to write down their carrying values and incur further losses. Any of these writedowns could have a material adverse effect on our results of operation and financial condition.”
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