Deutsche Bank braced for Libor fine with announcement of £1bn set aside

Deutsche Bank - Foyer Bridge

Germany’s biggest bank, Deutsche Bank, has announced it is setting aside €1.5bn (£1bn) for litigation costs, fuelling expectations that it may soon be the latest bank to be fined for rigging the benchmark Libor interest rate.

Seven banks and brokers have already been fined for manipulating the rate, although the penalties to be imposed on Deutsche are reported to be larger than the previous record of £940m paid by Swiss bank UBS in December 2012.

Deutsche Bank gave no reason for the extra litigation costs. At the end of December it had set aside €3.2bn for potential fines and penalties, and analysts had been forecasting a further €700m was possible.

But, the bank stressed that despite the higher than forecast provision, it would remain profitable in the first quarter of 2015. It is due to publish its results next Wednesday.

The settlement over Libor – used to set prices on £300tn of financial contracts around the world – with regulators in the US and the UK could be reached on Thursday.

The penalty would come as the bank prepares to overhaul its structure, potentially selling its Postbank arm, which has 1,100 branches, to focus on commercial and investment banking. There are fears in Germany of sweeping job cuts.

The bank’s management, led by Anshu Jain and Jürgen Fitschen, will be hoping the avoid the fate of Bob Diamond, who was forced out of Barclays in July 2012 following its Libor rigging fine. When Royal Bank of Scotland was fined in February 2013, John Hourican, the head of the investment bank, left “in recognition of the management issues” and the impact on the bank’s reputation. Piet Moerland, chairman of Rabobank, quit when the Dutch bank was fined £660m in October 2013.

Lloyds Banking Group has also been fined for rigging Libor, along with brokers Icap and RP Martin.

Shortly after Barclays was fined in 2012, Deutsche said some of its staff had been involved in trying to rig the key interest rates, but that “no current or former member” of senior staff had been involved. Jain used to run the investment banking operations of the bank, but an internal investigation has cleared him of any involvement. He has said in the past that the Libor scandal is “a very grave matter ... It has shaken the banking industry to the core”.

It has been reported that the German regulator Bafin, which has conducted its own investigation, has found no evidence that top bosses knew about any alleged manipulation.

The Libor fines have been accompanied by the release of emails and electronic messages between traders to illustrate how the interest rates were manipulated. The Deutsche Bank fine is expected to be accompanied by similar cache of evidence.

The wave of Libor fines, though, have since been surpassed by the penalties imposed for manipulating foreign exchange markets. In November, when the world’s major currency dealers agreed coordinated settlements with regulators in the US and the UK, the fines imposed on Royal Bank of Scotland, HSBC, Citibank, JP Morgan and UBS were records for the Financial Conduct Authority.

Barclays has yet to announce the terms of its fine for rigging the foreign exchange markets, after pulling out of the talks last year.

Powered by Guardian.co.ukThis article was written by Jill Treanor, for theguardian.com on Wednesday 22nd April 2015 20.39 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010

 

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