Dragged through the mud
Deutsche Bank has found a new form of Libor shame. Germany’s biggest bank on April 23 agreed to pay a record $2.5 billion to settle with three U.S. authorities and the UK’s Financial Conduct Authority over rate-rigging misdeeds. On top of the actual fiddling, it misled the UK regulator.
Part of the reason for the high sum – two-thirds more than UBS’s previous Libor record – is the age Deutsche took to provide evidence. Over the last three years, fines have inflated for rate-rigging as well as other offences.
Not all the foot-dragging was intentional. A big part was played by the bank’s staggeringly decrepit systems, the subject of previous admonishment from U.S. regulators. The FCA says Deutsche’s antiquated audio platform stopped it from providing timely or comprehensive recordings of its traders. More spicily, Deutsche ended up destroying 482 tapes of phone calls the FCA had requested. Luckily for the bank, the UK regulator says this action was accidental, not willful: though Deutsche also provided inaccurate information about whether other records were available.
Other parts of the charge sheet just seem bizarre. Deutsche was unable to say which traders had executed given trades – surprising for a bank whose traders tend to equate their own social status with their daily P&L. Then there’s its late decision to hire outside help to process the forensic requests for data. Unsurprisingly, that accelerated the review of what Deutsche says was 21 million electronic documents and 320,000 audio files.
Either way, Deutsche’s worst sin is clear. It claimed to the FCA in September 2013 that it was unable to share a preliminary report by German regulator BaFin into Deutsche’s role in interbank rate-rigging – despite internal legal advice days earlier that no such restriction existed. At separate times, a compliance officer and a senior manager also misled the British Bankers’ Association, the non-regulatory body responsible for Libor setting, by falsely claiming that Deutsche’s Libor submissions had been audited and that it had never colluded to fix rates.
This all adds up to acute cultural flaws. An upcoming fine for potential currency market manipulation could underscore these failings, or add new ones. The bank’s forthcoming strategy review isn’t the only renewal that Deutsche needs.