Photographer: Krisztian Bocsi/Bloomberg

Deutsche Bank to Pay $220 Million to U.S. States Over Libor

Updated on
  • German lender defrauded counterparties and boosted its trades
  • Barclays paid $100 million last year to settle the same probe

Deutsche Bank AG agreed to pay 45 U.S. states a combined $220 million to resolve a probe into interest-rate manipulation, more than twice the amount of Barclays Plc’s settlement last year.

The states’ investigation found that the German bank’s false rate submissions inflated borrowing costs linked to the London and U.S. dollar interbank offered rates, which are used to value trillions of dollars of securities and loans, New York Attorney General Eric Schneiderman said Wednesday in a statement.

“We will not tolerate fraudulent, manipulative or collusive conduct that interferes with or undermines confidence in our financial markets,” Schneiderman, who led the probe with California Attorney General Xavier Becerra, said in the statement.

The accord is the latest development in probes by governments around the globe into banks’ manipulation of benchmark interest rates, one of the key scandals that led to a cultural overhaul of the industry over the past decade. Global fines have topped $9 billion. Deutsche Bank paid $2.5 billion in penalties and disgorgements to resolve U.S. and U.K. investigations, and a unit pleaded guilty to wire fraud in connection with its role in the scandal. In July, the bank agreed to pay $77 million to resolve investor lawsuits in the U.S.

"This settlement resolves the bank’s final pending U.S. regulatory inquiry related to Libor," Troy Gravitt, a spokesman for the bank in New York, said in a statement.

Trading Positions

The bank admitted to allegations about how traders and managers engaged in the manipulation on an almost-daily basis from 2005 to 2009, according to the settlement. Deutsche Bank’s traders also attempted to influence other banks’ Libor submissions to benefit trading positions, Schneiderman said.

"Deutsche Bank employees and management knew or had strong reason to believe that Deutsche Bank’s and other panel banks’ Libor submissions did not reflect their true borrowing rates," according to the statement.

The 75-page settlement includes details of numerous internal Deutsche Bank messages in which traders ask rate submitters for changes to the rate in order to benefit their derivatives trading positions. The requests, including one that read "I NEED YOUR HELP," were met with affirmative instant messages or emails, including one response calling it a "belated Christmas present."

Submission by a panel of 16 banks were supposed to reflect borrowing rates in the interbank market, and a daily Libor rate was calculated by averaging the middle eight submissions. Deutsche Bank’s own derivatives positions shouldn’t have been taken into account, according to the settlement agreement.

The scandal has led to jail time for some bank employees. Tom Hayes, a former UBS Group AG and Citigroup Inc. trader, became the first person to be convicted over Libor manipulation and is serving an 11-year sentence. Former Barclays trader Jay Merchant was sentenced to 6 1/2 years for Libor manipulation, though his term cut by 12 months in February by a London appeals court.

Barclays last year became the first lender to settle state probes into Libor rigging, agreeing to pay $100 million to 44 states.

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