Deutsche Bank AG said regulators are probing failures by management to supervise individuals involved in arranging transactions for Banca Monte dei Paschi di Siena SpA, deals that the Italian bank used to hide losses.
Deutsche Bank has started internal employee disciplinary procedures and is cooperating with regulators, the company said in an offer document published today. The Frankfurt-based firm didn’t identify the regulators.
The deals first came to light in January 2013 when Bloomberg News reported that Monte Paschi used a transaction with Deutsche Bank, dubbed Santorini, to mask losses from an earlier derivative contract. Weeks later, the Siena, Italy-based lender restated its accounts to reflect the losses from Santorini and a similar deal with Nomura Holdings Inc.
Deutsche Bank’s own accounting of the borrowings also drew regulatory scrutiny after a separate Bloomberg News report. In January, the bank said it adjusted how it accounted for the deal after uncovering new facts amid an investigation by Germany’s regulator Bafin. At the time, Chief Financial Officer Stefan Krause said the Bafin investigation was still pending.
Deutsche Bank and Monte dei Paschi, Italy’s third-biggest bank, agreed in December to terminate the transaction 17 years early. The German firm, which was poised to earn 746 million euros ($1 billion), instead received 525 million euros from Monte Paschi and forfeited the rest.
Siena prosecutors are still investigating the transaction, Deutsche Bank said today, and the company’s financial exposure in relation to the investigations could be material.