Deutsche Bank set­tles probe

It will pay $2.5 bil­lion to New York, U.S., Bri­tish reg­u­la­tors to end in­ves­ti­ga­tion of al­leged in­ter­est rate ma­nip­u­la­tion.

Los Angeles Times - - BUSINESS - By Dean Stark­man dean.stark­man @la­times.com

It will pay $2.5 bil­lion to end in­ves­ti­ga­tion of al­leged in­ter­est rate ma­nip­u­la­tion.

NEW YORK — Deutsche Bank will pay $2.5 bil­lion to New York, U.S. and Bri­tish reg­u­la­tors to set­tle a lon­grun­ning in­ves­ti­ga­tion into al­leged ma­nip­u­la­tion of a key in­ter­est rate bench­mark known as Li­bor.

The set­tle­ment, the largest rate-ma­nip­u­la­tion set­tle­ment so far, is the lat­est it­er­a­tion of a string of scan­dals to have rocked the bank­ing in­dus­try in the years af­ter the fi­nan­cial cri­sis of 2008.

As part of its set­tle­ment with the U.S. Jus­tice Depart­ment, a unit of the Ger­man bank­ing gi­ant agreed to plead guilty to a sin­gle count of wire fraud for en­gag­ing in a scheme to de­fraud so­called counter-par­ties — its trad­ing part­ners.

The par­ent com­pany agreed to a de­ferred pros­e­cu­tion that re­quires the bank to co­op­er­ate with fed­eral pros­e­cu­tors in a con­tin­u­ing in­ves­ti­ga­tion and to re­tain a cor­po­rate mon­i­tor for three years.

In all, Deutsche Bank will pay $775 mil­lion to the Jus­tice Depart­ment, $800 mil­lion to the fed­eral Com­mod­ity Fu­tures Trad­ing Com­mis­sion, $600 mil­lion to the New York State Depart­ment of Fi­nan­cial Ser­vices and about $340 mil­lion to Bri­tain’s Fi­nan­cial Con­duct Author­ity.

“Deutsche Bank em­ploy­ees en­gaged in a wide­spread ef­fort to ma­nip­u­late bench­mark in­ter­est rates for fi­nan­cial gain,” said Benjamin M. Lawsky, su­per­in­ten­dent of the New York Depart­ment of Fi­nan­cial Ser­vices.

“While a num­ber of the em­ploy­ees in­volved in mis­con­duct have al­ready left the bank, those [who] re­main are be­ing ter­mi­nated or banned from the New York bank­ing sys­tem,” he said. “We must re­mem­ber that mar­kets do not just ma­nip­u­late them­selves: It takes de­lib­er­ate wrong­do­ing by in­di­vid­u­als.”

Li­bor, the Lon­don In­ter­bank Of­fered Rate, is a bench­mark in­ter­est rate used in fi­nan­cial mar­kets around the world and is rou­tinely writ­ten into stan­dard lend­ing doc­u­ments to set rates for mort­gages and stu­dent loans.

Since the 1980s, it has been com­piled daily un­der the aus­pices of the Bri­tish Bankers Assn. from data re­ported by 18 banks, which were sup­posed to have pro­vided good-faith es­ti­mates of the rate at which the bank be­lieved it could bor­row on a given day.

Au­thor­i­ties al­leged that from 2005 through 2011, traders at Deutsche Bank and else­where rou­tinely ma­nip­u­lated the es­ti­mates they re­ported to ben­e­fit their own trad­ing po­si­tions.

Court doc­u­ments ac­com­pa­ny­ing the Deutsche Bank set­tle­ment sub­mit­ted Thurs­day show what reg­u­la­tors called the cav­a­lier and brazen at­mos­phere in which the ma­nip­u­la­tion was done.

On Sept. 7, 2006, for in­stance, a Lon­don desk head at­tempted to per­suade a banker at an­other bank to fal­sify its es­ti­mate.

“I’m beg­ging u, don’t for­get me… ple­assssssssssssssseeeeeeeeee… I’m on my knees,” the trader said, ac­cord­ing to court doc­u­ments. Af­ter an ex­change, the Lon­don desk head con­tin­ued, “please pal, in­sist as much as you can.... I’m beg­gin u … can u beg [an­other banker] guy as well?” The banker agreed, “ok, I’m telling him.”

In a state­ment, Deutsche Bank said it had dis­ci­plined or dis­missed in­di­vid­u­als in­volved in the trader mis­con­duct, strength­ened its con­trol teams, pro­ce­dures and record-keep­ing and is con­duct­ing a thor­ough re­view of how the bank ad­dressed the prob­lem when it came to light.

The bank said, how­ever, that no cur­rent or past mem­ber of its board of di­rec­tors has been found to have been in­volved or even to have been aware of the mis­con­duct.

“We deeply re­gret this mat­ter but are pleased to have re­solved it,” Jürgen Fitschen and An­shu Jain, cochief ex­ec­u­tives of Deutsche Bank, said in a joint state­ment. “The bank ac­cepts the find­ings of the reg­u­la­tors.”

Other banks to set­tle Li­bor cases in­clude Switzer­land’s UBS, the Royal Bank of Scot­land and Bar­clays.

The Li­bor cases led to even wider probes into ma­nip­u­la­tion of for­eign cur­rency ex­change mar­kets in­volv­ing ma­jor U.S. banks. Among those that have set­tled so far are Cit­i­group Inc., JP Mor­gan Chase & Co., and HSBC Bank.

Frank Rumpenhorst Euro­pean Pressphoto Agency

DEUTSCHE BANK’S $2.5-bil­lion pay­ment is the largest in­ter­est rate-ma­nip­u­la­tion set­tle­ment so far. Above, the bank’s head­quar­ters in Frank­furt, Ger­many.

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