Deutsche Bank Said Set to Weigh Punishing Staff on LiborNicholas Comfort
Deutsche Bank AG, Europe’s biggest investment bank by revenue, will review whether to punish senior employees including Alan Cloete for their roles in the interest-rate rigging scandal, according to a person with knowledge of the matter.
Deutsche Bank’s supervisory board will discuss punishments early in the week of Jan. 27, said the person, who asked not to be named as the meeting isn’t public. These include firing or disciplining Cloete -- who oversaw traders alleged to have sought to rig benchmark rates -- and employees responsible for how the bank dealt with the scandal, the person said.
Regina Schueller, a spokeswoman for Deutsche Bank, declined to comment on what may be discussed at the board meeting. The bank is cooperating with regulatory authorities, she said. Cloete didn’t respond to an e-mail seeking comment. Schueller declined to comment on his behalf.
Regulators around the world are investigating whether more than a dozen firms colluded to rig benchmark interest rates such as the London interbank offered rate, or Libor, for their own profit or to mask their true cost of borrowing. The global penalties for rate-rigging reached $6 billion last month after the European Union fined Deutsche Bank and five other companies a record 1.7 billion euros ($2.3 billion).
The potential sanctions follow a Jan. 5 report in Der Spiegel that German banking regulator Bafin told Deutsche Bank in August that its management and supervisory boards didn’t adequately investigate and address the alleged rate-rigging. The German news magazine didn’t say where it got the information.
“Bafin appears to be calling for some heads on a plate,” Christopher Wheeler, an analyst with Mediobanca SpA in London who has the equivalent of a sell recommendation on Deutsche Bank, said today in a phone interview. “The supervisory board wants to make some form of gesture as the banks which did rig Libor committed a heinous crime.”
In Germany, corporate law requires traded companies to be headed by a two-tier system with a management board responsible for day-to-day operations and a supervisory board, whose main task is to oversee the management board and appoint its members. Half of the supervisory board members represents employees, while the other half is elected by shareholders. The supervisory board chairman has two votes in case of a draw.
Paul Achleitner, a 57-year-old former Goldman Sachs Group Inc. banker, leads Deutsche Bank’s 20-member supervisory board.
Cloete, who built Deutsche Bank’s structured credit finance business, leads operations in the Asia-Pacific region with former India chief Gunit Chadha.
Before moving to Hong Kong, Cloete was head of foreign exchange and global finance, while Anshu Jain ran the corporate and investment bank unit. He was a potential candidate to succeed Jain as head of the investment banking and trading unit when Jain became co-chief executive officer with Juergen Fitschen in June 2012, people with knowledge of the matter said in 2011.
At 49, Cloete was named to the group executive committee, according to a March 2012 statement. That’s the highest-ranking body after the management board and his nomination came as Jain promoted bankers he had worked closely with.
Cloete informed Jain of potential irregularities related to Libor in June 2011, the bank said in May.
Handelsblatt reported the board’s deliberations today.
The company fired two traders at the end of 2011 for trying to rig rates and five employees last February for what it said was inappropriate communication with colleagues on rate submissions. Four of the fired won a wrongful dismissal lawsuit in September and recovered back pay after telling a labor court their bonuses were reduced as an initial sanction.
They testified before the Frankfurt court that Cloete said they would be compensated once “the situation had calmed down.” Deutsche Bank disputes their account and has appealed the ruling.
Deutsche Bank is due to report fourth-quarter earnings and hold a press conference on Jan. 29. The supervisory board will also discuss the results, according to the person.
The supervisory board’s challenge is that it “should only fire people who had direct knowledge of what was going on rather than people who should have known,” Mediobanca’s Wheeler said. “Otherwise, you could make a case against the whole executive board.”