Blame Talks

In Libor Rate Probe, Deutsche Bank Moves to Settle Suit by Four Traders

  • Why it matters

    Why it matters

    Germany’s biggest bank is putting out legal fires on several fronts. In a case brought by four traders dismissed in an interest-rate investigation probe, the bank is moving to settle.

  • Facts

    Facts

    • Settling the trader suit would help Deutsche Bank pare its long list of legal problems.
    • British bank Barclays has settled for $453 million for its role in the Libor rate manipulation case.
    • Deutsche Bank, JP Morgan and Société Generale jointly agreed to pay a $2.3 billion fine to European regulators
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    Audio

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Deutsche Bank
Yielding to pressure from shareholders, Deutsche Bank on Sunday said its co-chief executives, Jürgen Fitsche and Anshu Jain, both longtime bank veterans, would be stepping down amid a series of investigations and record fines. Source: DPA

 

Deutsche Bank, Germany’s largest bank, will today seek a financial settlement with four traders it fired for manipulating interest rates in a case that has raised questions about the role of the co-chief executive, Anshu Jain.

It comes as the bank is struggling to extricate itself from a wave of legal disputes.

Deutsche Bank fired four of its senior interest-rate traders in February 2013 on suspicion of having manipulated the so-called London Interbank Offered Rate, or Libor, and its euro-currency equivalent, Euribor.

Their dismissal came after regulators worldwide began an investigation into interbank lending rates in 2012, amid suspicions that several major institutions were manipulating the rates at which they lend to each other in order to make an unlawful profit.

The investigations have resulted in heavy fines for some of the world’s biggest investment banks, and the departure of several chief executives.

Michael Huensler, a fund manager at Assenagon Asset Management in Munich, told Handelsblatt Global Edition that he believed Deutsche Bank’s top management had overhauled the bank’s culture and committed to its expansion, but were still haunted by the ongoing legal problems.

“It is fair to say that Deutsche Bank is suffering from reputational damage in terms of mishaps at the investment bank. The stock price is lagging behind its peer,” Mr. Huensler said. “Of course, these are legacy problems, but Deutsche Bank is one of the few banks where the senior executives date from that era so you could argue that they were part of the problem. Most other banks lost their top level over this.”

Mr. Huensler insisted however that while it was not ideal that its senior managers had been distracted by the lawsuits, neither the bank, nor major shareholders have “actively pursued” replacing them.

Regulators in the United States, the United Kingdom and the European Union have fined Deutsche Bank and other banks for rigging rates. Barclays agreed in 2012 to pay $453 million to settle allegations it had manipulated Libor. European regulators fined a group including Deutsche Bank, JP Morgan and Société Generale $2.3 million in December 2013.

Media reports last month said U.S. regulators now want to send supervisors into the U.S. offices of Deutsche Bank and Barclays to check currency transactions.

“Deutsche Bank has not yet closed this chapter. Important negotiations with authorities in Europe and the United States still have to be concluded,” said Ingo Frommen, analyst at German bank LBBW. “This will probably involve large sums of money, which will weigh on Deutsche Bank’s finances.”

An official at a German labor court told Handelsblatt that Deutsche Bank will negotiate with the traders individually at meeting rooms inside the court on Aug. 19 and 20. If no deal is reached, the process will go to court again on Sept. 19.

The traders successfully appealed against their dismissal last year, after the judge at a Frankfurt labor court ruled that while their actions were against company policy, the bank itself had inadequate internal controls and a culture that encouraged rule breaking for profit.

An official at a German labor court told Handelsblatt that Deutsche Bank will negotiate with the traders individually at meeting rooms inside the court on Tuesday and Wednesday. If no deal is reached, the process will go to court again on September 19.

Deutsche Bank declined to comment on the case.

The case mentioned Mr. Jain, who was head of the investment bank business during that time.

The four traders claimed during the proceedings that their former manager Alan Cloete wanted to conclude investigations on the interest rate manipulation case quickly and distance Mr. Jain from the proceedings. The traders quoted Mr. Cloete as saying: “I want to close this box. I don’t want to attract attention. Anshu will become chief executive.”

Deutsche Bank has dismissed the traders’ claim.

 

Fitschen and Jain
Mr. Fitschen and Anshu Jain are co-chairmen of Deutsche Bank's management board. Source: DPA.
Anshu Jain, right seen with co-CEO Jürgen Fitschen, was head of Deutsche Bank’s investment banking business at the time of the alleged interest rate manipulation by four of the bank’s traders. Source: DPA

 

Mr. Jain became co-chief executive in mid-2012 alongside Jürgen Fitschen, and was tasked with the job of cleaning up Deutsche Bank’s battered reputation. Both men were internal hires but the bank’s supervisory board hoped that the pair would be a steadying influence on the sometimes out-of-control bank. But the bank has continued to struggle with an at times bewildering array of scandals, including accusations by German authorities that it evaded tax, and by U.S. investigators who say it broke sanctions on Iran.

The bank has set aside €2.2 billion ($2.9 billion) for settling future legal disputes and is also in the middle of a restructuring process that will last at least until 2016. Financial analysts have estimated the eventual legal bill could be as high as €5 billion.

Most recently, German prosecutors are investigating whether Mr. Fitschen and other Deutsche Bank executives gave misleading evidence in a civil court case that the heirs of media baron Leo Kirch brought against the bank in 2011. The Kirch heirs claimed that comments by former chief executive Ralf Breuer about the financial stability of the company had triggered its bankruptcy.

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