Shocking Culture

Pulling No Punches

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A hard-hitting report from Germany's financial regulator.
  • Why it matters

    Why it matters

    Deutsche Bank’s reputation and businesses could continue to suffer if does not clear itself of accusations of wrongdoing.

  • Facts

    Facts

    • Germany’s largest bank is struggling to free itself from a string of investigations, criminal convictions and record fines.
    • The bank was fined $2.5 billion by U.S. and U.K. regulators in April to end a five-year probe into manipulation of Libor and Euribor interest rates.
    • John Cryan became co-CEO on July 1, taking over from Anshu Jain, and will be the sole CEO from next May.
  • Audio

    Audio

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Deutsche Bank has long hoped to draw a line under the past. “Cultural change” has been the bank’s new maxim since the 2008 financial crisis. No longer was profit to be the be-all and end-all. The whole issue of risk – and how profits were generated – were reevaluated.

But the past isn’t letting go easily. A 37-page letter from Germany’s Federal Financial Supervisory Authority, BaFin, to Deutsche Bank is a damning indictment of the culture that prevailed at Germany’s biggest bank and one of the top investment banks globally in the run-up to the 2008 financial crisis – and even after. The letter, details of which had been reported by Handelsblatt last month, was obtained and published in full on Friday by the Wall Street Journal.

It’s a culture that has cost Deutsche Bank dearly over the past few years. In April the bank was handed a record $2.5 billion fine by U.S. and U.K. regulators to end a five-year probe into its manipulation of the London-based Libor and Brussels-based Euribor interbank interest-rate benchmarks. Thousands more legal cases against the bank are still pending.

The legal cases were also part of the reason for the firing of Deutsche Bank’s chief executives Anshu Jain and Jürgen Fitschen last month, though Mr. Fitschen is staying on for another year in a transitional role together with the bank’s new CEO, John Cryan.

In the years before the financial crisis in 2008, BaFin said that a reorganization of the bank’s trading department, orchestrated by Mr. Jain, created a conflict of interest that helped pave the way for the manipulation of interbank interest rate benchmarks.

Even after the allegations of manipulation were made public, Deutsche Bank did not immediately react. When supervisory authorities intervened, they were given incomplete or false information, according to BaFin’s letter, which is dated May 11, 2015.

Deutsche Bank, in a reply to the letter on Thursday, strongly repudiated some of the accusations that its management played any role in the manipulation by its traders.

“We paid a high price and deeply regret the mistakes made,” it said in a statement. But further regulatory consequences can be expected.

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