Sideways: SoFi and the Deutsche Bank connection
SoFi is becoming increasingly reliant on former Deutsche Bank staff as it seeks to expand the use of complex financing structures to fuel growth in its loan sales.
Former Deutsche Bank co-CEO Anshu Jain was appointed as an adviser to SoFi in February and is expected to join the board. Ashish Jain, who is not related to the former co-CEO, but worked as a securitized sales manager for Deutsche in New York, was recently appointed to a new role at SoFi packaging loans for sales as securities. At an arm’s length Rajeev Misra, who for many years was one of Anshu Jain’s closest lieutenants at Deutsche and global head of credit, is now head of strategic finance at SoftBank, the Japanese telecom and internet firm that is a major financial backer for SoFi.
The three former Deutsche staff bring a wealth of structuring experience with them, but also significant reputational baggage.
Deutsche dismissed Ashish Jain last year after a regulatory inquiry into commercial mortgage backed securities trading sparked an internal probe. The bank concluded that he had failed to adhere to its policies and terminated his employment in early August.
His departure came two months after his namesake Anshu Jain left his role as co-CEO at Deutsche Bank and was replaced by new chief executive John Cryan.
Rajeev Misra left Deutsche in mid-2008 in what looked like an adroit piece of timing, as his departure came months before the credit crisis that led to enormous losses in the global credit group he had built. He later worked at UBS and Fortress before joining SoftBank in 2014.
Libor and Euribor manipulation charges took the highest profile among the myriad regulatory problems that Deutsche Bank faced under Anshu Jain’s stewardship, and that his successor Cryan is still battling to put behind the firm. Deutsche paid a record $2.5 billion fine for Libor manipulation just over a month before Jain left last year, and a recent US court ruling reopened the door for further private suits against Deutsche and other firms for interest rate fixing abuses.
There have also been regulatory and reputational issues surrounding Deutsche Bank’s credit market activity, however. During Misra’s stint as head of credit (when Jain was head of global markets), there were disputes with clients who felt that they had been sold packages of securities designed to exploit rating agency arbitrage by selecting the weakest credit within a given rating band.
Deutsche was later accused of intentionally mispricing credit derivatives during the credit crisis in 2008 and 2009 to avoid losses of multiple billions, and again settled charges last year, with the SEC, and admitted that it had underestimated its risk by between $1.5 billion and $3.3 billion.
More recently Colin Fan, who succeeded Misra as head of credit and later became co-head of corporate banking and securities before leaving last year, was accused of abuses in gaining from personal co-investment in a hedge fund that was used to offload credit derivatives risk from Deutsche. Fan denies any wrongdoing.
SoFi has set up a hedge fund called SoFi Credit Opportunities Fund, which is designed to buy SoFi’s own loans. The firm has declined to comment on how the fund will operate or how it will police the obvious potential for conflicts of interest.
The aim is presumably to complement direct sales of whole loans and securitizations by SoFi. An advert SoFi placed before its recent appointment of Ashish Jain said that the firm was seeking a candidate with the ability to manage complex sales processes and with access to institutional credit buyers including sovereign wealth funds, pension funds and insurance companies.
*Editor’s note: Jon Macaskill was employed by Deutsche Bank during some of the period documented in this article.