Deutsche Bank has many problems to contend with at the moment. A reminder of that costly laundry list came this weekend, as Germany’s largest bank and 11 of its global competitors reportedly agreed to a nearly $1.9-billion civil settlement of charges that they fixed prices and limited competition in the credit default swap market.
The settlement in the United States marked yet another tacit acknowledgment of the corruption of the investment banking model in the run-up to the 2008 financial crisis, which many say caused the global economic meltdown that began with the collapse of investment bank Lehman Brothers in September of that year.
Deutsche Bank, based in Frankfurt, has itself faced more than €10 billion in fines and settlements over the last few years, including a $2.5 billion fine from U.S. regulators for its role in fixing the Libor interest rate benchmark.
John Cryan, a British banker who took over as Deutsche Bank’s chief executive in July, has pledged to bring the bank’s numerous legal problems under control, even taking lead of its legal division on a temporary basis since his appointment.
The new settlement highlights that Mr. Cryan may still have a long road ahead of him. Ongoing regulatory investigations include allegations of possible money laundering by traders in Russia, the violation of U.S. sanctions and the manipulation of currency markets.
It seems barely any area of global investment banking has escaped being tarnished by allegations of price fixing or misleading clients in the months and years leading up to the 2008 crash.
The new settlement highlights that Mr. Cryan may still have a long road ahead of him.
The latest settlement involved credit default swaps and a class-action lawsuit brought by investors. A lawyer for the investors told news agency Reuters that the banks had agreed to pay $1.865 billion. Full details of the settlement had yet to be revealed, as the presiding judge in the case not yet approved the deal.
The collapse of the credit-default-swap market was also a major reason for the outbreak of the 2008 crisis. Before 2008, investors relied on such swaps to guard against the risk of a company or bank they invested in going bankrupt. The financial crisis caused the market to shrink by more than half and sparked the bankruptcy of AIG, an insurance firm that was a leader in credit-default swaps.
News of the latest legal settlement came as Deutsche Bank’s top brass – both its executives and supervisory board – held a closed-door meeting, thousands of miles away at Tegernsee Lake in the southern German state of Bavaria.
The three-day meeting from Thursday to Saturday was meant to address the bank’s uncertain future, and offered an opportunity for its new chief executive, Mr. Cryan, to present his own plans for the bank to its supervisory board and its chairman, Paul Achleitner.
The meeting came and went with no grand plan announced publicly. Mr. Cryan isn’t expected to announce the details of how he will shape the bank until the end of October at the latest.
Investors are hoping he will follow through with a promise of more aggressive cost-cutting of the bank’s operations than was done under his predecessors, Anshu Jain and Jürgen Fitschen, who faced criticism for failing to steer the bank back to a consistent profit and get costs under control in the years after the 2008 financial crisis.
Paul Achleitner, the chairman of the bank’s supervisory board, managed to solve at least one problem facing the bank at its latest meeting on Tegernsee Lake.
As Handelsblatt has learned from sources close to the bank’s leadership, Mr. Achleitner used the meeting to introduce a successor for Mr. Cryan, who had been a member of the non-executive supervisory board until leaving to become the bank’s chief executive. The bank released details Monday afternoon, naming Richard Meddings, a long-time British banker and accountant at Credit Suisse, Barclays, Standard Chartered and currently the non-executive director of British Treasury, as the nominated replacement.
Replacing Mr. Cryan was of some strategic importance. It means the capital side is no longer in the minority on the supervisory board, which has the power to dictate strategy and hire and fire the company’s executives.
Mr. Cryan left his position on the supervisory board in early July to replace Anshu Jain as co-CEO of Deutsche Bank. Mr. Fitschen is remaining co-CEO until next May.
Since the leadership change, the supervisory board has consisted of only 19 instead of the 20 members required under the bank’s statutes.
Because Mr. Cryan was also considered allied with the shareholders of the bank, his departure meant that labor representatives have been in the majority for the last three months.
While the supervisory board could still take decisions without a full complement, the situation meant that labor representatives had enough votes to block decisions. Mr. Achleitner, as chairman, has a second vote, but only if a vote was previously deadlocked.
If Mr. Cryan is planning any dramatic changes at Deutsche Bank, he’ll need the backing of the full complement of supervisory board members.
Christopher Cermak covers finance and the economy for Handelsblatt Global Edition in Berlin. Laura de la Motte is Handelsblatt’s lead correspondent covering Deutsche Bank in Frankfurt and Michael Maisch is deputy editor of Handelsblatt’s finance section. To contact the authors: firstname.lastname@example.org, email@example.com and Maisch@handelsblatt.com