by Gael O’Brien

Deutsche Bank AG was sued last week by the City of Los Angeles, which called the world’s fourth largest bank one of the city’s largest slumlords.

Deutsche Bank Towers_Frankfurt_Feature

Deutsche Bank Towers, Frankfurt

Deutsche foreclosed on more than 2,000 properties throughout Los Angeles in a four-year period; the suit alleges that  many tenants were evicted illegally, water and power shut off, and the bank allowed properties to sit and deteriorate, becoming magnets for squatters and criminal activity.

Disputing the allegation, Deutsche argues that loan servicers, not the bank as trustee are “contractually responsible for both the maintenance of foreclosed properties and any actions taken with respect to tenants of foreclosed properties.”

Also last week Deutsche was sued by the federal government for fraud and lying to benefit from mortgage insurance issued by the Federal Housing Administration (FHA). The suit alleges that Deutsche carried out fraud through MortgageIT – which it acquired in 2007.

Deutsche responded that it was reviewing the lawsuit, but believed the claims against the bank and MortgageIT to be “unreasonable and unfair.” The spokesman indicated that nearly 90 percent of the activities described in the lawsuit happened before Deutsche bought MortgageIT, which, the bank pointed out, had been a FHA lender operating under government oversight.

Blame the bank? Blame the contractor? Blame the subsidiary? Blame the federal government?  Blame those who wanted mortgages?

Evading responsibility and disassociating one’s role from activities that have disastrous consequences is often a hallmark of crisis. Recall:

  • BP initially blamed Transocean ,who operated the rig,  when it exploded dumping 240 millions gallons of oil into the Gulf of Mexico.
  • Nike’s initial reaction regarding sweatshop allegations was that they didn’t own those factories  or were responsible for them.

Deflecting responsibility seems an endless marathon to outrun litigation, looking for escape hatches to avoid accountability for what was known or should have been known, what was done or should have been done, and whether a company is responsible or not  for who it hires on its behalf.

Deutsche is only one of many financial institutions accused of predatory lending practices. The tsunami of foreclosures has made these institutions property owners in a magnitude that they’ve not had to operate before and with repercussions that will probably continue to unfold. Los Angeles officials have indicated that they are looking to pursue legal action against other banks.

Predatory lending practices helped drive the financial crisis; a crisis sufficiently complex, it is still being unraveled, with wisdom and action plans to avoid reoccurrence still out of reach.

P. T. Barnum is credited with the line “There’s a sucker born every minute.”


That sentiment underscores how business is conducted at its worst. We create “suckers” without transparency. What we need to know to enjoy a circus is totally different from what we need to know to make financial decisions about a house or an investment that are right for us. Partial or misleading information in business is predatory. And it destroys trust — what business needs for long-term success.

Also at its worst, business objectifies the consumer. Not seen as real the way your family members, neighbors, or people you went to school with are. As strangers, they are faceless, less human, and more like a video character whose fate is just part of the game.

In the game of “suckers” and predators everyone loses… eventually.

Gael OBrien_ID_CropGael O’Brien is a Business Ethics Magazine columnist. Gael is a thought leader on building leadership, trust, and reputation and writes The Week in Ethics, a weekly column where this article was first published.

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