Deutsche Bank to pay US$2.5B for interest rate manipulations

The CFTC’s fine against the bank is the largest it has ever imposed. The regulator issued an order Thursday bringing, and settling, charges that Deutsche Bank “routinely engaged in acts of false reporting and attempted manipulation and, at times, succeeded in manipulating the London Interbank Offered Rate (LIBOR) for U.S. Dollar, Yen, Sterling, and Swiss Franc, and the Euro Interbank Offered Rate (Euribor), interest rate benchmarks critical to the U.S. and global financial markets.”

It also charged the firm with aiding and abetting the attempts of traders at other banks to also manipulate Yen LIBOR and Euribor. The CFTC found that the bank’s traders engaged in this manipulative conduct to benefit cash and derivatives trading positions that were priced off of LIBOR or Euribor.

“As reflected in the CFTC’s findings and the US$800 million penalty imposed, Deutsche Bank’s culture allowed such egregious and pervasive misconduct to thrive,” said Aitan Goelman, CFTC’s director of enforcement.

The CFTC’s order finds that from 2005 through early 2011, Deutsche Bank’s submitters routinely took into account its traders’ derivatives positions, as well as their own cash and derivatives trading positions, when making the bank’s LIBOR and Euribor submissions. It says that the conduct of Deutsche Bank’s submitters, traders, desk managers, and at least one senior manager was systemic and pervasive, occurring across multiple trading desks and offices located in London, Frankfurt, New York, Tokyo, and Singapore.

The order finds that the bank “allowed submitters and traders to prioritize profit motives over appropriate submission considerations, permitted a culture of trader self-interest to exist, and created conflicts of interest, which allowed the misconduct to occur.”

It also says that the bank lacked internal controls, procedures, and policies to properly supervise its LIBOR and Euribor submission processes, and failed to adequately supervise its trading desks and traders. In settling the case, the CFTC says that the bank eventually cooperated with its investigation, but that its initial cooperation was not sufficient, and helped delay the resolution of the case.

In related actions, a subsidiary of Deutsche Bank agreed to plead guilty to a criminal charge of wire fraud in the U.S., and the bank entered into a deferred prosecution with the DoJ to defer criminal wire fraud and antitrust charges.

The FCA’s fine is also the largest it has handed down for LIBOR-related misconduct; and, the regulator says that it was particularly large because the bank also misled it during the investigation. The British regulator reports that its investigation was made more difficult and was delayed because the bank failed to provide timely, accurate and complete information. Ultimately though, Deutsche Bank settled at an early stage, qualifying for a 30% discount on its fine. Without the discount, the fine would have been £324 million, the FCA says.

“We deeply regret this matter but are pleased to have resolved it. The bank accepts the findings of the regulators,” said Jürgen Fitschen and Anshu Jain, co-CEOs of Deutsche Bank, in a statement.

“We have disciplined or dismissed individuals involved in the trader misconduct; have substantially strengthened our control teams, procedures and record-keeping; and are conducting a thorough review of the bank’s actions in addressing this matter,” they said. “This agreement marks another step in addressing the past and ensuring that the bank earns back the trust of its clients, shareholders and society at large.”