problems from the pacific

Deutsche Bank denies Australian cartel charges, calls emergency meeting

Images of ANZ Bank, Deutsche Bank and Citigroup Inc. as Companies Face Cartel Charges in $1.9 Billion Share Sale
Trouble in Deutsche's Antipodean paradise. Source: Bloomberg

The last thing Deutsche Bank needs right now is more bad news. But the bank has yet more legal trouble, this time in Australia, where prosecutors are to pursue Deutsche, along with two other financial institutions, on “criminal cartel charges.”

The news emerged at the end of yet another hard week. In recent days, Germany’s largest bank has had to digest news of a downgrade by credit agency S&P, as well as a further share price slump, bringing it close to historic lows (shares were up 2 percent again Monday morning). Of 33 analysts, 18 recommend selling Deutsche shares. Only four suggest buying them. Word has it that the German government, in addition to US and EU regulators, is also keeping a close eye on developments.

All of this prompted the head of Deutsche’s supervisory board, Paul Achleitner, to host a special conference call for board members Friday evening. At the conference, the bank’s new CEO, Christian Sewing, sought to reassure board members in the same way that he had reassured the bank’s 97,000 staff with an earlier letter: Despite the bad news and the downgrade, everything was under control, Mr. Sewing apparently said, though he admitted the  second quarter would be “challenging.”

The shareholders themselves were not worried about the bank’s stability but they did have concerns about how customers’ confidence was being eroded by all the bad news. “The situation is serious and raises concerns,” one of the bank’s larger shareholders told Handelsblatt, off the record. “There’s not much new that Sewing can say right now to turn the atmosphere around.”

After just two months in office, Deutsche Bank’s new boss is struggling to maintain morale among staff and investors amid a flood of bad news.

The newest legal challenge involves Australia’s fourth-largest bank, the Australia and New Zealand Banking Group, more commonly known as ANZ, as well as Deutsche and Citigroup. The case concerns ANZ’s institutional share placement, worth AU$2.5 billion ($1.9 billion) of ANZ shares, in 2015.

Unusually, charges will also be pressed against a number of individual executives, including ANZ Group treasurer Rick Moscati. Bank experts have called the decision to prosecute individual executives particularly unusual. If found guilty, those involved could face up to 10 years in prison as well as $320,000 in fines.

Deutsche Bank, which along with Citigroup and JP Morgan was responsible for underwriting the share issue, emphatically denies any wrongdoing in the case. A bank spokesperson in Sydney suggested it would defend itself “energetically.” Over the weekend, Citigroup insisted that its staff had behaved with integrity and that the issues at stake involved “technical questions,” which should be solved through consultation, not prosecution.

Because the case is ongoing, details remain scarce. The ANZ share issue was made on August 6, 2015, at the behest of Australia’s bank regulator, which insisted that all Australia-based banks increase their capital buffers to improve the stability of the country’s financial sector. The syndicate of Deutsche Bank, Citigroup and JP Morgan are being investigated for their alleged non-publication of information on unplaced shares (worth around $600 million) that they were responsible for. Some critics have suggested this amounted to withholding market-relevant information.

The new accusations come after Australia’s banks have been rocked by numerous scandals, including bribe-taking, document falsification and lying to regulators. The federal government has established a Royal Commission into the industry to establish what is going wrong there.

“They do stand under increasing scrutiny.”

Deutsche Bank investor

But for Deutsche Bank, the case is just another unwanted distraction for Mr. Sewing. After just two months in office, Deutsche’s new boss is struggling to maintain morale among staff and investors amid a flood of bad news. The S&P downgrade in particular would “set off alarm bells at professional business partners,” worried one influential investor, who declined to be named.

Nonetheless, neither the credit downgrade nor the Australian issue is stopping local customers from doing business at Deutsche Bank. “I believe Sewing is the right man [for the job],” said Daniel Terberger, head of the board at fashion company, Katag, with a turnover of more than €1 billion. Mr. Sewing “understands and knows the needs of the German Mittelstand,” which made him an ideal candidate to maintain a positive relationship with clients.

“As a long-time customer, you naturally get worried that the clean-up and changes are taking so long,” added Jürgen Heraeus, head of the supervisory board at the German technology company, Heraeus, who commented only in his capacity as a private customer. “The bank should separate itself from staff members who don’t want to go along with those.”

In other words, as one investor put it, Deutsche’s troubles haven’t stopped clients from doing business with the bank just yet, “but they do stand under increasing scrutiny.”

Urs Wälterlin covers Australia, New Zealand, Oceania and Southeast Asia for Handelsblatt. Yasmin Osman, Peter Köhler and Andreas Kröner in Frankfurt, Astrid Dörner in New York city and Anja Müller in Dusseldorf, also contributed to this story. To contact the author: waelterlin@handelsblatt.com

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