Deutsche Bank to pay $2.5B for Libor rate violations, Deutsche Bank has agreed to pay $2.5 billion to settle charges brought by U.S. and British authorities that it manipulated of benchmark interest rates for years, including leading up to the financial crisis, regulators and the Justice Department announced Thursday.
The penalty includes a payment of $600 million to the New York State Department of Financial Services, $800 million to the Commodities Futures Trading Commission, $775 million to the U.S. Department of Justice, and $340 million to the United Kingdom's Financial Conduct Authority.
Deutsche Bank's DB Group Services (UK) Limited, an entity based out of London, pleaded guilty to wire fraud for its role in manipulating the benchmark interest rate, the Justice Department said. Deutsche Bank entered into a deferred prosecution agreement in connection with wire fraud and anti-trust charges, which will require the bank to retain a corporate monitor for three years.
The German lender has agreed to fire employees who were involved in the misconduct and install an independent monitor for New York state banking law violations, according to New York State Financial Services Superintendent Benjamin Lawsky.
It is the sixth and largest settlement so far resulting from regulators' long investigation of financial institutions' manipulation of the London Interbank Offered Rate, a benchmark interest rate used in financial markets around the world. Set by the London-based traders of major banks, Libor is used to set rates on trillions of dollars of loans, credit cards and some complex financial derivatives.
"For years, employees at Deutsche Bank illegally manipulated interest rates around the globe – including LIBORs for U.S. Dollar, Yen, Swiss Franc and Pound Sterling, as well as EURIBOR – in the hopes of fraudulently moving the market to generate profits for their traders at the expense of the bank's counterparties," said U.S. Assistant Attorney General Leslie Caldwell.
Lawsky says the violations were committed from 2005 through 2009 by Deutsche Bank traders who regularly requested that people responsible for submitting rates, called submitters, submit rate contributions that would benefit their trading positions.
His department's statement on the settlement cited traders' emails uncovered in the investigation.
On February 21, 2005, for example, a trader wrote to another trader who was also occasionally a submitter, "can we have a high 6mth libor today pls gezzer?"
The rate submitter replied, "sure dude, where wld you like it mate ?"
After they agreed on a rate, the trader who asked for the rate fix commented that he couldn't get "that level of flexibility" when the usual submitter is in the chair.
In another instance, on December 29, 2006, a trader wrote to a submitter, "Come on 32 on 1. Mth… Cu my frd." The submitter replied, "ok will try to give you a belated Christmas present…!"
Deutsche Bank's traders made similar requests to employees of other banks and financial institutions, including Barclays, Lawsky said
A bank's interbank offered rate, or IBOR, is supposed to correspond to the cost of what a bank pays to borrow funds, and is therefore a reflection of a bank's financial health. Higher rates may suggest liquidity problems, for example.
But leading up to the financial crisis, the rate manipulation problem was clouding some banks' true state of affairs. Some large international banks also received negative press coverage concerning their high and potentially inaccurate LIBOR submissions, which may have contributed to their declining stock prices, Lawsky said.
The Justice Department has settled with five other banks as part of its probe into LIBOR manipulation, including Barclays, UBS, The Royal Bank of Scotland and Lloyds Banking Group. DOJ has also charged 12 individuals as a result of the probe, and three have pleaded guilty.
Deutsche Bank's fine marks the largest paid so far in the probe. UBS agreed to pay $1.5 in 2012 to settle the charges, and a unit in Japan pleaded guilty to fraud.
Deutsche Bank's DB Group Services (UK) Limited, an entity based out of London, pleaded guilty to wire fraud for its role in manipulating the benchmark interest rate, the Justice Department said. Deutsche Bank entered into a deferred prosecution agreement in connection with wire fraud and anti-trust charges, which will require the bank to retain a corporate monitor for three years.
The German lender has agreed to fire employees who were involved in the misconduct and install an independent monitor for New York state banking law violations, according to New York State Financial Services Superintendent Benjamin Lawsky.
It is the sixth and largest settlement so far resulting from regulators' long investigation of financial institutions' manipulation of the London Interbank Offered Rate, a benchmark interest rate used in financial markets around the world. Set by the London-based traders of major banks, Libor is used to set rates on trillions of dollars of loans, credit cards and some complex financial derivatives.
"For years, employees at Deutsche Bank illegally manipulated interest rates around the globe – including LIBORs for U.S. Dollar, Yen, Swiss Franc and Pound Sterling, as well as EURIBOR – in the hopes of fraudulently moving the market to generate profits for their traders at the expense of the bank's counterparties," said U.S. Assistant Attorney General Leslie Caldwell.
Lawsky says the violations were committed from 2005 through 2009 by Deutsche Bank traders who regularly requested that people responsible for submitting rates, called submitters, submit rate contributions that would benefit their trading positions.
His department's statement on the settlement cited traders' emails uncovered in the investigation.
On February 21, 2005, for example, a trader wrote to another trader who was also occasionally a submitter, "can we have a high 6mth libor today pls gezzer?"
The rate submitter replied, "sure dude, where wld you like it mate ?"
After they agreed on a rate, the trader who asked for the rate fix commented that he couldn't get "that level of flexibility" when the usual submitter is in the chair.
In another instance, on December 29, 2006, a trader wrote to a submitter, "Come on 32 on 1. Mth… Cu my frd." The submitter replied, "ok will try to give you a belated Christmas present…!"
Deutsche Bank's traders made similar requests to employees of other banks and financial institutions, including Barclays, Lawsky said
A bank's interbank offered rate, or IBOR, is supposed to correspond to the cost of what a bank pays to borrow funds, and is therefore a reflection of a bank's financial health. Higher rates may suggest liquidity problems, for example.
But leading up to the financial crisis, the rate manipulation problem was clouding some banks' true state of affairs. Some large international banks also received negative press coverage concerning their high and potentially inaccurate LIBOR submissions, which may have contributed to their declining stock prices, Lawsky said.
The Justice Department has settled with five other banks as part of its probe into LIBOR manipulation, including Barclays, UBS, The Royal Bank of Scotland and Lloyds Banking Group. DOJ has also charged 12 individuals as a result of the probe, and three have pleaded guilty.
Deutsche Bank's fine marks the largest paid so far in the probe. UBS agreed to pay $1.5 in 2012 to settle the charges, and a unit in Japan pleaded guilty to fraud.
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