RPR&C In The Media

Deutsche Bank AG paid a record $2.5 billion penalty to settle U.S. and British allegations that it manipulated interest rates, wrapping up a years-long investigation that was delayed by the German bank’s lack of cooperation with government authorities.

As part of Thursday’s settlement, a Deutsche Bank unit in London pleaded guilty to U.S. Justice Department criminal charges. The Frankfurt-based bank acknowledged that for years it prioritized profits over proper rules and that, even after government investigations were well under way, it failed to adequately police employees who were involved with the London interbank offered rate, or Libor, and similar widely used benchmarks.

Deutsche Bank, which in 2013 paid nearly $1 billion to resolve a European antitrust investigation into Libor, becomes the eighth major global financial institution to settle similar U.S. and British allegations. Its total of about $3.5 billion in penalties is more than double the next-highest penalty, $1.5 billion, paid in late 2012 by UBS AG.

Like other banks, Deutsche Bank was accused of letting employees nudge Libor and other rates up or down slightly to benefit their trading positions. The practice was harmful, authorities say, because Libor and other benchmarks are used to determine interest rates on everything from mortgages to corporate loans to complex financial derivatives.
For years, the practice of manipulating was widespread across the banking industry, but Deutsche Bank appears to have been an especially aggressive participant, with dozens of traders and managers involved, U.S. regulators said. Deutsche Bank didn’t set up a formal policy to prevent similar misconduct until mid-2013, long after authorities had started filing criminal charges against banks and individuals for their roles in the Libor scandal.

Unlike other banks, Deutsche Bank also was criticized for failing to cooperate fully with U.S. and British authorities.

Throughout the investigation, Deutsche Bank executives, including co-Chief Executive Anshu Jain, emphasized that they were fully cooperating with government authorities. Until May 2012, Mr. Jain was the London-based head of Deutsche Bank’s investment bank, the unit where the misconduct occurred.

The U.S. Commodity Futures Trading Commission said Deutsche Bank initially dragged its feet in the investigation, which slowed down the probe’s progress.

The U.K.’sFinancial Conduct Authority was harsher, with Georgina Philippou, the agency’s acting director of enforcement, blasting Deutsche Bank for “repeatedly misleading us.”
The British regulator accused Deutsche Bank of lying in 2013 about its supposed inability to hand over a report produced by a German regulator. The FCA said the bank destroyed 482 tapes of recorded phone calls after it was instructed to preserve evidence related to the investigation. And Deutsche Bank provided false information to the FCA about whether certain other records existed.

Deutsche Bank in a statement apologized for its misconduct, including failing to adequately cooperate with regulators. The bank said it has taken steps to improve its internal systems to avoid similar problems in the future. It noted that no senior executives or board members were involved in or aware of wrongdoing.

No Deutsche Bank employees were singled out by name in Thursday’s settlement. New York banking regulator Benjamin Lawsky, as part of his $600 million settlement with the bank, said Deutsche Bank needs to take steps to fire seven employees, including one unidentified managing director in the bank’s London office.

While Thursday’s $2.5 billion in penalties represents the biggest punishment meted out so far in the seven-year Libor investigation, it isn’t likely to inflict severe damage on Deutsche Bank. The bank said Wednesday that its first- quarter profits would be dented by setting aside EUR1.5 billion to cover related expenses but that it is likely to remain profitable.

The unit of Deutsche Bank that was charged by the U.S. Justice Department–DB Group Services (UK) Ltd.–is relatively obscure, and its guilty plea therefore is unlikely to have a significant effect on Deutsche Bank’s overall business. U.S. prosecutors said the London unit employed many of the dozens of Deutsche Bank derivatives traders and Libor submitters who were involved in misconduct.

Some experts criticized prosecutors for not pursuing high-ranking officials at the bank. “If senior executives like board members were not directly involved but responsible, they should go to jail,” said David H. Peirez, partner with the New York law firm Reisman Peirez Reisman & Capobianco LLP. Otherwise the misconduct is “never going to stop.”

U.S. authorities are still investigating separate allegations that Deutsche Bank was involved in efforts to manipulate foreign-exchange markets. People familiar with the matter say the bank is likely to face an even higher fine than for the Libor case. Deutsche Bank is also being probed for alleged violations of U.S. sanctions on Iran and other countries.