Deutsche Bank agreed to pay $205 million to settle a long-running investigation of its foreign exchange trading by New York’s banking superintendent, resolving one of several remaining regulatory issues that have dogged the bank in the United States.
Employees at the bank participated in multiparty chat rooms where they shared confidential client information, discussed the coordination of trading activity and attempted to manipulate foreign exchange prices or benchmark rates, according to the New York State Department of Financial Services. The bank acknowledged those actions, which occurred from 2008 through 2013, in a consent order filed Wednesday.
The settlement leaves Germany’s largest bank with several significant unresolved investigations in the U.S., as it embarks on its fourth global turnaround plan in three years and is scaling back staff in the U.S. Deutsche Bank was one of the biggest participants in the foreign exchange market over the period covered by the DFS. It was not called out for the sort of misdeeds that cost its rivals billions of dollars in earlier settlements with the U.S. Justice Department and led to guilty pleas from five global banks.
The Frankfurt-based lender said it was pleased that the New York regulator had recognized its “extensive cooperation and remediation” and that the settlement is fully covered by the bank’s existing provisions.
‘Jamming the Fix’
According to the DFS consent order, traders took advantage of Deutsche Bank’s status as the biggest player in the forex market to manipulate currency prices at those periods when the prices would be "fixed" in the market. This practice, known as "jamming the fix," was a frequent topic of conversation among some Deutsche Bank traders and their counterparts at other banks.
The DFS order cites an instance of attemped collusion in which a Deutsche Bank trader helped organize an effort among his competitors to inflate prices in a derivative of Brazilian reals. The dealers operated in a chat room known as "Butter the Comedian." The scheme involved quoting inflated prices to clients. When it unraveled within a few weeks, a participant from a different bank lamented that "it’s rough in a prostitute’s market."
“Due to Deutsche Bank’s lax oversight in its foreign exchange business, including in some instances, supervisors engaging in improper activity, certain traders and salespeople repeatedly abused the trust of their customers and violated New York State Law," said Maria Vullo, superintendent of the DFS.
The bank’s electronic trading platform also had the potential to disadvantage customers over certain periods, the regulator said, bringing an end to the DFS’s look into algorithmic trading that dates back at least four years. Deutsche Bank’s foreign exchange settlement amount is well below the $635 million that Barclays paid to the state to resolve probes into similar matters in 2015.
Deutsche Bank has spent more than $17 billion over the past decade in legal costs, according to calculations by Bloomberg, and CEO Christian Sewing recently said it has resolved 15 out of its 20 biggest cases. The lender had 1.9 billion euros ($2.9 billion) in litigation provisions at the end of the first quarter.
The Justice Department is investigating so-called mirror trades that allowed the bank’s Russians clients to take as much as $10 billion from the country, in what regulators in related settlements have called a breakdown of bank compliance. The U.S. is also probing whether the bank violated U.S. sanctions against Iran before 2008.
Deutsche Bank has also acknowledged that its hiring practices were under investigation by the Securities and Exchange Commission and Justice Department for possible violation of the Foreign Corrupt Practices Act, without mentioning any specific jurisdiction.
The latest settlement with the DFS comes years after other banks have resolved allegations of conspiring to manipulate currency trading. Three years ago, the U.S. Justice Department rattled global banks with a settlement that led to $5.8 billion in fines from other big currency market participants. Barclays, Citigroup, JPMorgan Chase and Royal Bank of Scotland Group pleaded guilty in May 2015 to conspiring to rig currency rates.
That prosecution centered around activities of traders who identified themselves as “the Cartel” and who face individual charges in the U.S. The Justice Department closed its criminal inquiry into Deutsche Bank’s currency trading activities without taking action, the German lender said in March 2017.