Deutsche comes close to reaching Libor settlement

Deutsche Bank is finally close to resolving a high-profile regulatory dispute that has been unnerving investors and weighing on the bank's valuation.

By the end of the month, the bank is likely to reach a settlement with regulators in the US and the UK over allegations that it manipulated the Libor benchmark interest rate, said people familiar with the situation.

However, the resolution will not be cheap. The penalty could even top $1.5bn, the amount paid by the Swiss bank, UBS, to a combination of US, British and Swiss regulators to settle its own Libor investigation in 2012.

Christopher Wheeler, an analyst at Atlantic Securities, said that settling and putting the uncertainty over the size of the fine behind it would be "positive" for Deutsche.

"If they paid €1.5bn, that would be an extremely large amount of money, but it would be manageable," he said.

"We were expecting a material settlement," said Jon Peace, head of European banks' research at Nomura. "Although the reported fine of $1.5bn is at the top end of the range paid by peers we also believe that Libor represents the biggest part of Deutsche Bank's existing €3.2bn of litigation provisions which should help limit the hit to earnings and capital."

Mr Peace believes existing provisions will probably cover almost all of the fine. This means the impact on the bank's earnings will be small.

One reason that Deutsche is facing such a high penalty is that in the early phase of the investigation, the German lender was slow in handing over documents to authorities, which has hurt the bank, people familiar with the case said.

The slower pace of the current probe has also had another effect: it has allowed New York's Department of Financial Services, which is known for taking a hard line in bank investigations, to step in, which has also pushed the potential Libor penalty higher.

DFS, which is run by Benjamin Lawsky, stayed out of past Libor probes that led to settlements with Barclays, UBS, Royal Bank of Scotland and other banks.

Some of those financial institutions, such as UBS, are not under the jurisdiction of DFS, which oversees banks that have New York state charters. Other overseas banks, such as Barclays, are regulated by DFS, but at the time of the past Libor settlements, the agency's resources were tied up in other investigations into sanctions violations and money laundering allegations, people familiar with the cases said.

DFS wanted to see stiffer penalties for Deutsche given the nature of the alleged misconduct, people familiar with the case said. The terms of a settlement have not been finalised and the penalty could go higher, the people added.

This is not the first time the German bank's compliance processes have been in the regulatory crosshairs. Deutsche Bank Securities was fined in 2004 for tardiness in submitting emails to regulators during an investigation into conflicts of interest between research and investment banking.

And in 2013, Deutsche said that it had taken "significant measures to enhance its systems and controls", after paying a €725m fine to European authorities over Libor.

Deutsche is spending €1bn on the upgrade, which will allow it to identify electronic and voice communications that are of interest to regulators and the bank more quickly. It said on Friday that it continued "to work with the authorities that are reviewing interbank offered rates matters".

Despite the news of the possible settlement, shares in Deutsche closed up 0.3 per cent at €33.09 in Frankfurt.

© The Financial Times Limited 2015. All rights reserved.
FT and Financial Times are trademarks of the Financial Times Ltd.
Not to be redistributed, copied or modified in any way.
Euro2day.gr is solely responsible for providing this translation and the Financial Times Limited does not accept any liability for the accuracy or quality of the translation