Danske Bank A/S (DANSKE) suspended six employees after Danish prosecutors started a probe into price manipulation on mortgage bond trades conducted in 2009.
The Danish Public Prosecutor for Serious Economic and International Crime has today “brought accusations against Danske Bank of price manipulation under particularly aggravated circumstances,” the Copenhagen-based bank said.
Danske said an internal investigation found that its rules had been violated in transactions between its home-loan arm, Realkredit Danmark A/S, and Danske Bank in the mortgage bond market. The bank said it notified the Financial Supervisory Authority, prompting the police investigation against Realkredit Danmark, Danske Bank and six employees.
“Usually we say that price manipulation will, as a minimum, lead to jail time if they’re convicted,” Hans Fogtdal, a public prosecutor with the crime squad, said by phone. “None of the involved seems to have had a personal motive to commit the crime. It was about securing Danske Bank an additional profit.” The maximum time the employees face behind bars is four years, he said.
Denmark’s $550 billion mortgage bond market is the world’s largest per capita and more than 1 1/2 times the size of the economy. Consumers and businesses in the Nordic nation finance their home loans using bonds. Realkredit Danmark is the country’s biggest provider of bond-backed home loans after Nykredit Realkredit A/S.
The charges relate to a “less liquid mortgage bond” based on the Copenhagen interbank offered rate, the crime squad said in a statement. “The possible price manipulation was conducted in such a way that it harmed customers at Realkredit Danmark in agreements between employees at the two institutions in February and March,” it said.
The FSA “apparently” was only notified by Danske Bank “a few days” before handing it over to the crime squad, which received the case yesterday, Fogtdal said. “We’re filing the case now to avoid it becoming outdated” under Denmark’s statute of limitations, he said.
Danske considers “the matter to be very serious and is cooperating fully with the authorities,” Chief Executive Officer Thomas F. Borgensaid in the statement.
The internal investigation found no evidence that staff members other than the four were involved, the bank said. In view of the further investigation, the four employees and their two superiors have been suspended.