Bank Accountability

Deutsche Bank, Target of Probes, Adds One More in U.S. Hedge Fund Investigation

Deutsche Bank has comeunder scrutiny for helping hedgefunds to avoid taxes. Soucre: DPA.
Deutsche Bank has come under scrutiny for helping hedge funds to avoid taxes.
  • Why it matters

    Why it matters

    As Germany’s largest bank, Deutsche Bank’s health is critical to that of the European financial system. While the bank remains well-funded after raising €8.5 billion ($11.6 billion) in fresh capital last month, it is facing a flurry of legal bills that are hurting its bottom line.

  • Facts


    • Deutsche Bank reported a 34 percent drop in net income in the first quarter, in part related to legal settlements. It reports second quarter results next week.
    • Deutsche Bank has set aside €2 billion for future legal costs, though some analysts estimate the total cumulative cost could be as high as €5 billion.
    • The U.S. investigation into hedge funds is part of a broader effort to crack down on tax avoidance on Wall Street. Some European officials have complained that the United States is unfairly targeting European banks.
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Germany’s largest bank has once again come under the scrutiny of authorities, this time for allegedly helping hedge funds in the United States avoid paying as much as $6 billion ($4.5 billion) in taxes on trading profits and skirting regulations on borrowing for more than a decade.

Deutsche Bank and London-based Barclays bank reportedly earned $1 billion from the scheme, which is under investigation by U.S. tax authorities and was the subject of a 93-page report this week by U.S. senators Carl Levin and John McCain. The banks insisted they were operating within the law.

Mr. Levin, the long-serving Michigan Democrat, called for any loopholes to be closed, lost taxes to be recouped from hedge funds and for the banks to be penalized for their involvement. He labeled the scheme “a series of fictions, one piled on top of another – fictions that major banks and their hedge fund clients used to avoid taxes and federal leverage limits.”


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