Deutsche Bank pays record fine for Libor manipulation

Deutsche Bank has paid a record $2.5bn to authorities in the US and UK to settle allegations that it manipulated the Libor benchmark rate, a key interbank borrowing rate that underpins as much as $350tn of debt worldwide, from student loans to complex financial instruments.

In addition to forking out the largest total fine to date in the worldwide investigation into the Libor scandal, Germany's biggest bank was ordered to dismiss seven employees, while a London subsidiary, DB Group Services, is pleading guilty to US criminal wire fraud charges.

The fines come at a critical juncture for Deutsche as it prepares to present a key strategic plan to its supervisory board on Friday designed to cement its position as Europe's leading investment bank.

The Libor scandal has claimed several executives' scalps at institutions that have already settled with authorities: Bob Diamond, Barclays' former chief executive, was forced out shortly after that bank's fine.

While Anshu Jain, Deutsche's co-chief executive, was head of its investment bank during the alleged Libor rigging, the bank said he had been cleared of any wrongdoing and Mr Jain himself has told colleagues he had no intention of standing down.

However, some legal experts suggested the bank's top echelons had been tainted by the scandal. "It seems hard to imagine a situation today where such wide scale misconduct could be carried out without the executive management knowing or at least turning a blind eye," said Tony Brown, managing director of Bivonas Law.

Deutsche has paid out £227m to the UK's Financial Conduct Authority, $775m to the US Department of Justice, $800m to the Commodity Futures Trading Commission and $600m to the New York Department of Financial Services. It is the first time that the DFS, led by the combative Benjamin Lawsky, has been involved in a Libor settlement.

Deutsche - the seventh financial institution to be fined by the US and the UK in their seven-year investigation - admitted in Thursday's settlement that its employees had rigged yen Libor and the Brussels and Tokyo equivalents, Euribor and Tibor, to benefit their trading book and those of traders at other banks.

At least 29 Deutsche employees, including a senior manager and mid-level managers, traders and rate submitters in Frankfurt, New York, London and Tokyo, were involved, the FCA said.

Deutsche drew particular criticism and was handed the second-largest fine in the FCA's history for misleading the British watchdog during the investigation.

"Deutsche Bank's failings were compounded by them repeatedly misleading us. The bank took far too long to produce vital documents and it moved far too slowly to fix relevant systems and controls," said Georgina Philippou, acting director of enforcement.

Jurgen Fitschen and Mr Jain, Deutsche's co-chief executives, said the bank accepted the authorities' findings. "We deeply regret this matter but are pleased to have resolved it," they said 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.

"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."

The regulators cite myriad conversations involving Deutsche staff to justify their findings. One exchange quoted by the FCA took place on December 29 2006, between people described as Manager B and Submitter C.

Manager B: "…COULD I BEG YOU FOR A LOW 3M [EURIBOR] FIXING TODAY PLEASE. THANT WOULD BE THE BEST XMAS PRESENT ;)"

Submitter C: "…BE A PLEASURE, NO PROBS WE HAVE NOTHING ON THE OTHER SIDE HERE. WILL PUT IN 71 [3.71 per cent] AT LEAST MAYBE WE CLD [could] PUT IN 70 [3.70]…"

Manager B: "LOW AS POSSIBLE AS WE HAVE 2.5 YARDS [2.5bn] ON IT TODAY, SO WOULD BE VERY HELPFULL"

On December 29 2006, Deutsche's three-month Euribor submission was 3.70 per cent, a 3 basis point drop from the day before.

Almost four years later, on August 31 2010, Deutsche staff acknowledged they were aware they were behaving improperly. One person wrote in a conversation: "We're going to get in trouble if we keep moving it up and down . . ."

Mr Lawsky, the superintendent of DFS, said: "Deutsche Bank employees engaged in a widespread effort to manipulate benchmark interest rates for financial gain.

"While a number of the employees involved in misconduct have already left the bank, those that remain are being terminated or banned from the New York banking system. We must remember that markets do not just manipulate themselves: it takes deliberate wrongdoing by individuals."

Although Deutsche has sacked numerous employees involved in the alleged misconduct, some related to the scandal are still working at the bank.

The DFS has ordered Deutsche to take "all steps to terminate" a London-based managing director, four London-based directors, one London-based vice-president, and one Frankfurt-based vice-president.

The previous record fine was the $1.5bn levied against UBS in 2012 by US and UK authorities over Libor.

Two former star traders at Deutsche are part of parallel criminal investigations: Guillaume Adolph, who denies wrongdoing, is an alleged co-conspirator of a former trader at two other banks who is due to stand trial in London, while Christian Bittar is under investigation as part of the UK Serious Fraud Office's probe into the alleged manipulation of Euribor. Neither man has been charged with any wrongdoing.

The FCA last year told Mr Bittar that it wanted to fine him but that process was halted due to the SFO's criminal probe, the Financial Times has previously reported. The FCA's proposed fine is as high as £10m, according to people familiar with the matter; it would be a record penalty for an individual, although it appears likely to be contested.

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This means Deutsche has paid more in total fines than its Swiss rival over the Libor debacle. Its £227m fine to the FCA also eclipses the £160m that UBS paid to the UK regulator as part of its Libor penalty.

While Deutsche still qualified for a full 30 per cent discount by not contesting the FCA's decision, the UK watchdog has criticised the lender for not co-operating fully.

BaFin, Germany's markets watchdog, is not part of Thursday's settlement and the bank is still awaiting its decision.

Deutsche is separately awaiting the outcome of an investigation by US prosecutors and regulators into the alleged manipulation of foreign exchange markets.

Reporting by: Caroline Binham, Lindsay Fortado and John Aglionby in London, Gina Chon in Washington and James Shotter in Frankfurt

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