- Foreign exchange, mirror trade investigations unresolved
- Bank had $6 billion set aside for legal costs at end of 2015
Deutsche Bank AG boss John Cryan vowed Tuesday to personally lead his institution to swiftly resolve its legal and law-enforcement challenges around the world.
The bank is grappling with matters that many of its global rivals have put behind them -- including U.S. probes into its mortgage-backed securities business and into whether its traders colluded to manipulate currency rates. In a more recent development, the bank is being investigated by U.S. and U.K. authorities over whether its internal controls failed to catch some $10 billion in transactions that may have moved money out of Russia, people familiar with the matter have said.
“You’ve seen a lot of the same issues for a lot of banks,” said Elliott Stein, a Bloomberg Intelligence litigation analyst. “The problem is they have so many. These issues are not going away, and the bank is not likely getting a discount for settling a lot at once.”
Addressing market concerns, Cryan said the bank is “absolutely rock solid”and has a plan to cover its legal costs.
“I am personally investing time to resolve successfully and speedily open regulatory and legal cases,” he wrote in a note to employees. “A small group of senior people, led by me, will focus on this.”
Germany’s biggest bank has paid more than $9.3 billion in fines and legal settlements worldwide since the start of 2008, according to data compiled by Bloomberg. That includes settlements related to violations of U.S. sanctions, rigging of interest-rate benchmarks and allegations that it defrauded mortgage issuers Fannie Mae and Freddie Mac.
Deutsche Bank was placed under "enhanced supervision" by U.K. banking regulators more than a year ago. The system was put in place to ensure that financial institutions undergo a system of checks and reviews after serious failures. No other major institution is known to be under the same scrutiny.
Deutsche Bank, in disclosing investigations by regulators and law enforcers, has said it’s cooperating in those matters. Bank spokeswoman Renee Calabro declined to comment for this article.
As of the end of 2015, the bank had set aside 5.5 billion euros ($6 billion) for future litigation expenses. “We will almost certainly have to add to our legal provisions this year but this is already accounted for in our financial plan,” Cryan said Tuesday. The bank said the cost of litigation this year is expected to “remain a burden, but expected to be below 2015 levels” in its quarterly presentation last month.
Deutsche Bank recently appointed a former White House and Justice Department attorney as general counsel for the Americas as the firm seeks to resolve legal probes.
Many of Deutsche Bank’s global peers have put big litigation expenses behind them by reaching settlements over alleged wrongdoing tied to mortgage-backed bonds and trader collusion. JPMorgan Chase & Co., for its part, has been penalized more than $23 billion in major settlements with U.S. authorities in recent years, in connection with allegations that including that it allowed the “London Whale” trader to exceed risk limits and that it failed to flag transactions related to Bernard Madoff’s Ponzi scheme.
Here are some of the major legal challenges Deutsche Bank still faces:
Deutsche Bank is the biggest global currency trader that hasn’t reached a deal with the U.S. Department of Justice to settle allegations that its traders were among those that conspired to rig currency rates. JPMorgan, Citigroup Inc.’s Citicorp and four others agreed to pay $5.8 billion and enter guilty pleas in connection with the currency-rigging probe.
The bank is also among 16 that are being sued by pension funds and others over allegations that their traders attempted to manipulate currency rates using talks in online chatrooms. Deutsche Bank and six others have countered in court filings that that there isn’t "a single specific factual allegation" that they conspired to manipulate the rates. The other nine banks have proposed payments of about $2 billion between them to settle the investors’ civil action.
Deutsche Bank also hasn’t resolved a U.S. probe into its sales of mortgage-backed bonds, among the instruments that were at the heart of the 2008 U.S. financial crisis.
JPMorgan, Citigroup and Bank of America Corp. have already settled Justice Department allegations that they misrepresented the value of residential mortgage-backed securities, paying more than $36 billion between them to settle with state and federal authorities. Last month, Goldman Sachs Group Inc. announced it has reached an agreement in principle with the Justice Department to pay $5.1 billion to settle its exposure in that matter. It isn’t clear what Deutsche Bank could be required to pay to resolve the RMBS probe.
U.S. and U.K. authorities are investigating whether Deutsche Bank properly vetted as much as $10 billion in transactions that may have masked the flow of money out of Russia, people familiar with the situation have said. The bank has said it’s sharing information with regulators and law-enforcement agencies in the matter.
Other U.S. Probes
The bank is also among the global institutions under scrutiny by U.S. law enforcers in other previously reported matters.
As part of a broad investigation into trading in the U.S. Treasury market, the Justice Department is seeking information about trading at nearly two dozen primarily dealers, a group that includes Deutsche Bank. The bank has disclosed it has received inquiries from law-enforcement authorities over trading in precious metals benchmarks and over hiring practices in Asia.