Letter to PM cites Sajid Javid’s career selling CDOs and alleged links to tax avoidance scheme

John McDonnell has accused Sajid Javid of profiting from the greed that fuelled the financial crisis, in a stinging attack on the chancellor’s former City career before his move into politics.

In an explosive letter to Boris Johnson, the shadow chancellor questioned whether Javid was suitable for high public office given his time at Deutsche Bank. Javid held several senior executive positions at the German investment bank, including a role selling collateralised debt obligations (CDOs), a type of complex and risky financial product responsible for turbocharging the financial crisis.

McDonnell said the new chancellor must also answer questions over any connection he may have had with a tax avoidance scheme known as “dark blue” during his time at Deutsche.

The shadow chancellor demanded that the prime minister launches an investigation, adding there was evidence that would raise alarm bells over Javid’s suitability to look after the nation’s finances.

In the letter sent on Monday, seen by the Guardian, he said: “It will not be lost on those that have suffered the consequences of the last nine years of austerity following the 2008 financial crisis that the newly appointed chancellor profited from the greed that contributed to it.”

Before his election as the Conservative MP for Bromsgrove in 2010, Javid had an 18-year career in the City, and latterly with Deutsche Bank in Asia. As global head of credit trading for the region, excluding Japan, he sold risky bonds and complex derivative products, including CDOs.

CDOs are complex financial products that gained a toxic reputation during the financial crisis for fuelling the collapse of the global banking system. They have been labelled by the US investor Warren Buffett as “financial weapons of mass destruction”.

Deutsche Bank, which was among the biggest sellers of CDOs, was described by US senator Carl Levin as a “financial snake pit rife with greed, conflicts of interest and wrongdoing” ahead of the 2008 crash

The bank has faced repeated scandals, including for internally referring to some of its CDOs as “crap” that “blows”. Deutsche Bank has spent more than $18bn (£15bn) on fines and to settle legal disputes in the past decade, according to Bloomberg.

McDonnell said Javid was a senior office holder at the German bank around the time that a US Senate committee concluded it had inflicted “material damage to ordinary people and the wider global economy”.

He referred to a report by the financial magazine Euromoney, that said: “[Javid] was responsible for structuring an emerging-market synthetic CDOs that incurred millions of dollars worth of losses for investors.”

According to the magazine, Javid worked at Deutsche Bank when it sold $500m (£411m) of collateralised loan obligations (CLOs) – similar to CDOs but using loans rather than bonds – to investors who later sued the German bank for losses of as much as $37m (£30m). The case was dismissed because it came after the expiration of a five-year statute of limitations on legal disputes.

Javid had also previously told the magazine that CDOs were “very appropriate” for buyers as long as they understood the risks associated with them.

Warning that the comments should call into question whether the new chancellor should be trusted with the nation’s finances, McDonnell said Javid was implicated in “some of the worst excesses of the casino economy”.

He also called for the prime minister to investigate Javid’s personal tax affairs. The new chancellor, who was reportedly paid about £3m per year, is said to have taken a 98% pay cut to become an MP.

Demanding that Javid publish his tax returns, McDonnell questioned whether the chancellor benefited from a tax avoidance scheme while at Deutsche Bank. The Mail on Sunday reported in 2014 that Javid opted into a scheme known as “dark blue” that channelled bankers’ bonus payments through the Cayman Islands.

McDonnell said: “It critically undermines this government’s response to the scourge of tax avoidance for the chancellor to stand accused of this practise.

“Every penny avoided in tax by wealthy large corporations is a penny taken from our desperately underfunded public service.”

A Conservative spokesman said: “Frankly, Labour might want to use the time better thinking about their own credentials for governing. Not content with antisemitism being rife in their party and their totally incoherent Brexit policy, the only threat to the UK economy is them.

“Their reckless plans would see debt soaring as they spend one thousand billion pounds, tax raids on hard working families and upheaval of our economic system by replacing key posts such as the governor of the Bank of England with their hard left choices. Utter disaster. If any party knows about failure and bogus investigations, it’s them.”

Deutsche Bank declined to comment.

The Guardian, 5 August, RJ Partington