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