Deutsche-Libor

The Biggest Fine of Them All

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Deutsche Bank facing a hefty fine.
  • Why it matters

    Why it matters

    Deutsche Bank’s profitability has been hard-hit by a series of lawsuits that have forced it to set aside billions of euros.

  • Facts

    Facts

    • Deutsche Bank could settle by the end of the month with U.S. authorities over its role in Libor, according to news agencies.
    • Germany’s largest bank has set aside more than €3 billion for pending litigation. The Libor fine would eat up about half that amount.
    • Deutsche Bank has already paid €725 million to Brussels authorities for its role in Libor.
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    Audio

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It would match the biggest fine that a bank has faced in the global scandal over the manipulation of interest rates. And yet, if the settlement is confirmed, Deutsche Bank may actually be relieved its ordeal is finally over.

Germany’s largest bank is expected to settle for $1.5 billion, or €1.4 billion, with U.S. and British authorities for its role in helping manipulate a benchmark interest rate known as Libor, the London Interbank Offered Rate, in the run-up to the global financial crisis of 2008, according to information obtained by Handelsblatt.

The settlement could be finalized by the end of this month. The bank’s British subsidiary is also expected to admit guilt for its role – one of the largest banking groups to do so. News agencies Bloomberg and Reuters originally reported the settlement.

Deutsche Bank itself would not comment publicly on the matter. A spokesman said only that “we continue to work with the authorities that are reviewing interbank offered rates matters.”

April is shaping up to be quite the busy month for Germany’s largest bank, which is also one of the world’s largest players in investment banking. The results of a massive strategic overhaul are set to be announced by the end of this month, while its co-chief executive Jürgen Fitschen is expected to appear before trial charged with misleading authorities in a separate case.

Whatever the final verdict on Libor, Deutsche Bank would be among the last to settle charges that its traders helped rig a global benchmark for interest rates, which has been relied on by markets around the world to get a sense every day of exactly how much banks are charging each other for loans.

“Buying off the authorities with a record fine solves one problem, but leaves a bitter aftertaste as the bank has had to pay the highest penalty. This of course could be problematic for the bank’s standing among investors.”

Klaus Fleischer, Banking professor, Munich university of Applied Sciences

“The overdue resolution of the Libor scandal should above all help Deutsche Bank, which is in the firing line of a series of spectacular tussles with investigators, to row into smoother waters ahead,” Klaus Fleischer, a banking professor of the University of Applied Sciences in Munich, told Handelsblatt Global Edition.

Swiss bank UBS, British bank Barclays, France’s Société Générale, U.S. bank Citigroup and the Dutch bank Rabobank are among those that have settled with authorities either in the United States or with the European Commission in Brussels for their own role in the scandal.

Deutsche Bank, too, has already paid a hefty fine for its role: The European Commission fined the bank more than €725 million in 2013. The U.S. fine comes on top of that settlement.

It is hardly the only legal tussle that Deutsche Bank is involved in. The German powerhouse is mired in a series of lawsuits that have tarnished its reputation and cost it billions in profits over the last few years. Its co-chief executive Jürgen Fitschen and other former bank executives are also due to appear in court in the spring, over their role in a long-running struggle with the now-bankrupt Kirch media empire, in one of the most spectacular trials in Germany’s history. The bank has set aside more than €3 billion for pending litigation.

The fine also comes as Deutsche Bank is embroiled in a massive internal struggle over its future. In perhaps the biggest strategic overhaul in its history, the bank is considering massive cuts in its retail business and its investment banking operations around the world in a bid to become leaner and return to profitability.

The Libor settlement at least frees the bank from one of its most embarrassing outstanding cases. But the high fine could still have ramifications going forward. The record fine puts Deutsche Bank in the position of coming off as the worst perpetrator in the years-long investigation.

“Buying off the authorities with a record fine solves one problem, but leaves a bitter aftertaste as the bank has had to pay the highest penalty,” Mr. Fleischer said. “This of course could be problematic for the bank’s standing among investors.”

 

The Biggest Fines-01

 

Whether this truly suggests Deutsche Bank was the worst offender is still an open question. Fines over Libor have risen steadily since Britain’s  Barclays paid $450 to settle the charges and avoided a guilty plea in 2012. U.S. authorities have clearly gotten more aggressive in their approach, also including a record  $9 billion fine imposed on France’s BNP Paribas for violating U.S. sanctions.

Still, Mr. Fleischer suspects the high fine could also encourage politicians in Germany and Europe to get tougher with banks, for example by pushing through a law that separates banks’ proprietary trading from its traditional commercial banking businesses.

That’s not to say that banks haven’t taken steps since the financial crisis to crack down on illegal practices by their traders.

“The efforts have been immense in the last few months. It’s going in the right direction, but it would be Utopian and naive to think that banking scandals can be completely ruled out,” Mr. Fleischer said.

 

This story was updated at 1255 Central European Time with Handelsblatt confirmation of the pending settlement.

Christopher Cermak has covered banks and the economy from Frankfurt and Washington DC and is currently an editor with the Handelsblatt Global Edition in Berlin. To contact the author: cermak@handelsblatt.com

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