Deutsche Bank AG, indicted for colluding with Banca Monte dei Paschi di Siena SpA to conceal the Italian lender’s losses, mismarked the transaction and dozens of others on its own books, according to an audit commissioned by Germany’s regulator.

Executives at Deutsche Bank arranged 103 similar deals with a total value of 10.5 billion euros ($11.8 billion) for 30 clients, according to the audit, a copy of which was seen by Bloomberg. The Frankfurt-based lender, Germany’s largest, adjusted the accounting of 37 of those trades in 2013, in addition to Monte Paschi’s, changing them from loans that had been kept off the books to derivatives, the audit said.

The widespread use of a transaction that’s now the subject of a criminal case highlights the lender’s appetite for complexity at a time when the bank was expanding its fixed-income empire. While Deutsche Bank has since cut risky assets and eliminated thousands of jobs to bolster capital, mounting legal costs have become a source of increasing concern to investors, driving shares to a record low.

“Very complex deals prevent the market and regulators from properly understanding the state of a bank’s balance sheet, inhibiting proper regulatory monitoring and distorting market discipline,” said Emilios Avgouleas, a law professor at the University of Edinburgh.

The audit found that while Monte Paschi was the only client that used a transaction to “window dress” its books, Deutsche Bank didn’t correctly account for similar deals with banks from Italy to Indonesia made between 2008 and 2010. The report also said senior executives didn’t properly authorize the Monte Paschi trade, dubbed Santorini, or adequately review the transaction after receiving a subpoena from the U.S. Federal Reserve in 2012.

Monte Paschi restated accounts in 2013 after the transactions came to light and further amended results in 2015 at the request of Italy’s regulator. Deutsche Bank’s restatement of how it accounted for its side of the deals didn’t affect the firm’s profitability, and the bank didn’t adjust earnings before 2013 because the overall effect wasn’t material, the audit said. Deutsche Bank had assets of about 1.8 trillion euros at the end of September 2013.

“Deutsche Bank reclassified how it accounted for a number of so-called enhanced repo transactions in September 2013, which had no impact on Deutsche Bank’s reported profit,” Adrian Cox, a London-based spokesman for the lender, said in an e-mail. “The fact that these transactions were enhanced repos does not justify inferring a connection between them and the particular case of Monte Paschi.”

Faissola, Dunbar

Deutsche Bank and six current and former managers, including Michele Faissola, who oversaw global rates at the time, and Ivor Dunbar, former co-head of global capital markets, were indicted in a Milan court on Oct. 1 for the 2008 Monte Paschi transaction. Both were top deputies to former Deutsche Bank co-Chief Executive Officer Anshu Jain, and all three have left the company. Faissola declined to comment, and Dunbar didn’t respond to a phone message.

The U.S. Justice Department’s request for $14 billion to settle an investigation into the sale of residential mortgage-backed securities, which was rebuffed by the bank, prompted questions among some investors and clients about Deutsche Bank’s ability to withstand pending legal costs. CEO John Cryan sent a memo to staff last week saying the bank is safer than at any time in the past two decades.

Complex Deals

Investors have been rattled by speculation that some of Deutsche Bank’s most complex deals are an “accident waiting to happen,” Jacques-Henri Gaulard, a London-based analyst at Kepler Cheuvreux, wrote to clients on Sept. 29. The lender has about 29 billion euros of so-called Level 3 assets, which are the hardest to value, dwarfing its market value of about 16 billion euros.

The audit was conducted by accounting firm Peters Schoenberger & Partner, which was commissioned by Bafin, the German financial-markets regulator, in January 2014 to examine Deutsche Bank’s role in the Monte Paschi deal and how managers ran a subsequent internal inquiry. The struggling Italian bank had used the loan to hide a trading loss in an earlier bet it made with Deutsche Bank, as reported by Bloomberg in 2013. The audit was completed in December 2014.

Enhanced Repos

Deutsche Bank’s “risk management regarding the MPS/Santorini transaction as a complex structured financing transaction was materially inappropriate and ineffective,” given the reputational risks involved, according to the review.

Known internally as enhanced repos, the deals kept loans off Deutsche Bank’s balance sheet by canceling them out with separate liabilities created in the transactions, according to deal documents reviewed by Bloomberg. Deutsche Bank sold collateral the borrower had provided, such as government bonds, creating a new obligation for the bank to eventually return the bonds. In the original accounting, the loan was offset by that obligation, making it essentially disappear. A smaller balance sheet would make Deutsche Bank look healthier by boosting its capital ratios. Changing the repos to derivatives meant that the bank’s assets more accurately reflected the size of the deals.

The enhanced repos allowed clients to avoid using mark-to-market accounting, which would have forced them to immediately recognize changes in value, according to the audit. Instead, Deutsche Bank executives structured the deals to be eligible for accrual accounting, the report said. That enabled parties to book gains or losses as they occurred over a longer period of time.

Fed Scrutiny

“This is the kind of thing that banks used to do — complex investment banking where the more complex, the higher the fees,” said Bill Blain, a strategist at brokerage Mint Partners in London. “The world has changed. Successful banks are the ones that have adapted — at Deutsche Bank, we’ve seen very little buy-in.”

A spokeswoman for Bafin declined to comment, as did a spokesman for the Fed.

The review said that Fed scrutiny of Deutsche Bank’s Monte Paschi deal in late 2011 led to a subpoena a few months later. Bafin expressed concerns to Deutsche Bank about “balance-sheet cosmetics” soon afterward.

In July stress tests, the European Central Bank found Monte Paschi to be the weakest capitalized euro-region lender. The Siena-based bank, the world’s oldest, is now seeking to sell bad loans and raise fresh capital after tapping investors twice before. The bank, whose shares have lost 99 percent of their value since 2008, restated its accounts to change a repo to a derivative on a similar deal with Nomura Holdings Inc. in 2015. The Deutsche Bank trade was settled in December 2013.

Deutsche Bank in February said Bafin completed inquiries into multiple cases including Monte Paschi, pointing to changes already implemented and further measures it planned to take. An overhaul of the management board and the departure of some senior executives contributed to the regulator’s assessment that the company’s remedial actions were sufficient, a person with knowledge of the matter said at the time.

“This uncertainty and especially the uncertainty around Level 3 assets is causing people to price in a very high risk premia in the banking sector,” said Mohammed El-Erian, a Bloomberg View columnist and adviser to Allianz SE, in an interview with Bloomberg TV. “It shows you Europe has been well behind the U.S. in strengthening its banking system.”

By Vernon Silver, Elisa Martinuzzi & Donal Griffin