Department of justice

Report: Deutsche Bank in Treasuries Probe

John Cryan, bisheriger Co-Vorstandsvorsitzender und zukünftiger Vorstandsvorsitzender der Deutschen Bank, spricht am 19.05.2016 auf der Hauptversammlung der Bank in der Festhalle in Frankfurt am Main (Hessen). Foto: Arne Dedert/dpa +++(c) dpa - Bildfunk+++
John Cryan, Deutsche Bank's CEO, has done his best to put a positive spin on the stress test results.
  • Why it matters

    Why it matters

    If the Department of Justice finds Deutsche Bank was involved in rigging auctions for government debt, it will likely face fines and a further loss of confidence among shareholders, investors and customers.

  • Facts

    Facts

    • The U.S. Department of Justice started investigating a year ago whether auctions for government debt were rigged and is now narrowing its focus.
    • Germany’s largest bank is already grappling with thousands of legal cases and struggling to win back trust in the institution.
    • Last year Deutsche Bank paid record fines of $2.5 billion last year for rigging inter-bank trading rates.
  • Audio

    Audio

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Deutsche Bank is apparently in the focus of a Department of Justice probe in the United States over whether it was involved in the rigging of government auctions for treasury bonds, according to a report in the New York Post.

Last year, the Department of Justice started investigating whether banks rigged the auctions for the bonds and requested communications material from all 22 primary dealers of the securities.

No bank has been accused of wrongdoing, but investigators are now zeroing in on a smaller group of the biggest Wall Street banks and their counterparts in Europe and Asia, the New York Post reported.

“Based on our review to date, we have no reason to believe we are the focal point of any investigation into this market.”

Deutsche Bank spokeswoman

After Goldman Sachs, Deutsche Bank is the second Wall Street bank to come in for closer investigation, the paper said.

“Deutsche Bank is cooperating with the industry-wide investigations into the auction market,” Monika Schaller, the bank’s communications director, wrote to Handelsblatt Global Edition in an email. “Based on our review to date, we have no reason to believe we are the focal point of any investigation into this market.”

It’s a fresh headache for Deutsche Bank, which remains mired in nearly 8,000 legal cases, though many are smaller disputes in Germany. In 2015, Deutsche paid a record $2.5 billion fine for manipulating the interbank trading rate, known as Libor, and for hindering the investigation.

 

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In total, Germany’s biggest bank spent €5.4 billion on legal disputes last year, a sum Chief Executive John Cryan called “unacceptable” when he addressed shareholders earlier this month. Since 2012, the bank has spent more than €12 billion on legal settlements.

The burden is proving costly. For 2015, the bank reported a record loss of €6.8 billion for 2015 and its shares have plummeted by half in a year.

At the shareholders meeting two weeks ago, Mr. Cryan tried to assure attendees that the bank was nearing the “finish line” when it comes to settling the largest of its outstanding cases. But they seem to keep on emerging. Depending on the outcome of the latest case, the bank’s long-hoped-for turnaround may take more time.

Beside the current investigation by the U.S. Department of Justice, the Securities and Exchanges Commission is looking into whether banks rigged the auctions, along with the Department of Finance, the Commodity Futures Trading Commission and the European Commission, according to the New York Post. The authorities are also looking into whether the prices for gold, silver and derivatives were manipulated.

 

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The inquiry is further advanced into Goldman Sachs, which registered the investigation in a filing in November.

Last year when the news of the DOJ’s probe first emerged, investors filed cases against the banks for possibly rigging the auctions, including pension funds, and these cases have been consolidated in Manhattan federal court, according to the report in the Post.

The Department of Justice is investigating the way bankers traded the debt before it was issued, as well as whether they coordinated to manipulate the trades. The inquiry spans communications, emails and chat to find out if primary dealers colluded to steer auctions in their favor.

The investigators are also looking at when-issued securities, which allow investors to guarantee they will be able to get a bond when it’s issued. The inquiry aims to clarify if the price of these was artificially raised, meaning banks could profit at the later auction.

No settlement is expected until after the U.S. elections in November, according to the Post’s unnamed sources.

 

Allison Williams is deputy editor in chief of Handelsblatt Global Edition. To contact the author: williams@handelsblatt.com

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