Deutsche Bank fined £500m over Russian money transfers

Customers moved money out of the country in a manner 'suggestive of financial crime', says FCA

deutsche bank

Deutsche Bank has taken the latest in a line of financial hits from regulators, this time for as much as £8bn worth of money laundering offences in Russia, says The Guardian.

The German banking giant was fined £505m in total, including a record penalty of £163m from the UK's Financial Conduct Authority (FCA) and $425m (£342m) from the New York Department of Financial Services.

It could have been worse - the FCA said Deutsche had been "exceptionally cooperative" and so qualified for a 30 per cent discount.

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In its decision, the UK watchdog said the bank had weak systems to detect financial crime between 2012 and 2015 and allowed $10bn (£8bn) of transfers from Russian accounts that were "highly suggestive of financial crime".

The largest share, $6bn (£4.8bn), relates to so-called "mirror trades", whereby corresponding transactions in different jurisdictions that appear to serve "no economic purpose" have the effect of shifting money from one place to another.

Deutsche and other banks are also accused of using mirror trading to circumvent international sanctions imposed against Russia.

Investigations into the bank's Russian operations over these trades are not yet over. Deutsche says it is "cooperating with other regulators and law enforcement authorities", reportedly including the US Department of Justice (DOJ).

Last month, the bank entered into a $7.2bn (£5.8bn) settlement with the DoJ related to its mis-selling of mortgage-backed bonds in the lead up to the financial crisis.

Mark Steward, director of enforcement and market oversight at the FCA, said: "Financial crime is a risk to the UK financial system. Deutsche Bank was obliged to establish and maintain an effective AML control framework.

"By failing to do so, Deutsche Bank put itself at risk of being used to facilitate financial crime and exposed the UK to the risk of financial crime."

New York's financial services superintendent Maria Vullo said: "This Russian mirror-trading scheme occurred while the bank was on clear notice of serious and widespread compliance issues dating back a decade.

"The offsetting trades here lacked economic purpose and could have been used to facilitate money laundering or enable other illicit conduct."

Deutsche Bank agrees 'tentative' £5.8bn US fine

23 December

Deutsche Bank has announced a "tentative deal" with the US Department of Justice in the US over the sale of mortgage bonds ahead of the financial crash, says the New York Times.

The bank had been put on notice in October that US authorities wanted to hand down a penalty of as much as $14bn (£11bn), which would have cleaned out its financial reserves and forced it to raise new money or seek a government bailout.

It was seen as an existential crisis - and the bank's shares plummeted to a record low below €10, around a tenth of their pre-crash peak.

But bosses always said the fine would be no more than around half that amount - and today they confirmed that by disclosing a settlement of $7.2bn (£5.8bn), comprising of a $3.1bn (£2.5bn) fine and $4.1bn (£3.35bn) to compensate consumers.

That's still a lot of money, but the bank will probably not now be forced to raise new capital. It had already set aside around €5.5bn (£4.9bn) to cover ongoing litigation.

"It could have been even worse for Deutsche Bank, but the punishment that has now been agreed… will put a heavy burden on the country's biggest financial institution for years to come," says Suddeutsche Zeitung, translated by the BBC.

Deutsche's shares rose by 2.8 per cent, to above €18.

At the height of the boom banks made big profits by "packaging" huge volumes of mortgages, including those lent to borrowers with poor credit histories, and "selling them on to investors.

These bonds were priced on the basis that they were ultra safe, but when the market turned in 2007 this theory was proved incorrect and the market crashed.

The Department of Justice has since recouped $48bn (£39bn) from a clutch of US banks - and alongside the Deutsche settlement it is also reported to have reached agreement with Credit Suisse worth $5.3bn (£4.3bn).

It is also reported this morning to be suing Barclays, which has refused to agree a settlement.

The New York Times says Deutsche has warned “there can be no assurance that the US Department of Justice and the bank will agree on the final documentation.”

Deutsche Bank turns surprise profit in third quarter

27 October

Deutsche Bank has "earned itself some breathing space after a turbulent few weeks", says the Financial Times.

The German banking group today issued third-quarter results that surprised the market. Most analysts expected figures for the three months to September to show a hefty loss for the second year in a row, but instead they revealed a €278m (£249m) net profit.

That's well in excess of the near €6bn (£5.4bn) loss for the same period in 2015 and above the consensus estimate for a fall of €394m (£353m).

Positive performance was mainly driven by the investment banking arm that generates most of Deutsche Bank's income in the US. This was "buoyed by a recovery in bond trading that helped banks across Wall Street", says the FT.

Overall revenues came in ten per cent higher, at €7.5bn (£6.7bn).

In further good news for Deutsche Bank, a decision to reduce its asset base by letting go of a number of "non-core" disposals boosted its effective cash reserves ratio from 10.8 to 11.1 per cent. The reductions have eased many longstanding worries over the bank's financial security.

Concerns remain, however, the most pressing of which being the massive fine looming in the US. As a result of this, Deutsche chief executive John Cryan says the positive steps in turning around the business are being "overshadowed".

The bank increased its litigation provisions from €5.5bn to €5.9bn (£4.9bn to £5.3bn) for the quarter.

The figure is well below the initial demand for $14bn (£11bn) from the US Department of Justice over pre-crash sales of mortgage-backed securities. But even if the sum is reduced, the eventual penalty could wipe out the bank's value and force it to raise fresh capital.

That is not the only action Deutsche Bank is facing. Alongside a civil claims suit from investors that runs into billions of dollars, there are ongoing investigations in both the UK and US over its trading in Russia.

Speculation on Deutsche's future has hit client confidence, with €8bn (£7.2bn) of outflows from its asset management business in the third quarter.

Investors also remain wary. After trading shares more than three per cent higher this morning on the better-than-expected results, the price has waned through the day and was up just 0.5 per cent in late afternoon trading.

Deutsche Bank 'faces long wait' on US fine

25 October

Deutsche Bank may have to wait until next year to settle a massive US fine which has dented its share price and cast doubt on its future.

The bank's shares slumped to a record low last month after it emerged that the US Department of Justice wanted to fine it $14bn (£11bn) for alleged mis-selling of mortgage-backed securities in the run-up to the financial crisis.

A penalty on that scale threatens Deutsche's very existence: even at half that level it would be well in excess of current cash reserves and force it to seek new funds from investors or the government.

Its stock jumped earlier this month when rumours emerged that the bank might have reached a settlement with US authorities at a much lower level – but nothing was ultimately forthcoming.

Now Sky News says "Department of Justice representatives have signalled in recent days that the imposition of penalties on Barclays, Credit Suisse and Deutsche Bank may not be concluded until closer to the arrival of the new US administration in January".

The problem is that negotiations with the other two banks are dragging on and an "announcement from the DoJ could slip beyond next month if it remained intent upon settling with all three banks simultaneously".

For as long as Deutsche is unable to dispel fears of a massive penalty it will remain under pressure - and according to the Financial Times it also now has to deal with a separate legal case that "exposes another vulnerable flank for Deutsche's US business".

A number of investors led by BlackRock are suing the bank for failing to protect them from risks related to a mortgage-backed securities trust funds, which Deutsche managed.

"The complaint relates to 465 trusts with a total face value of about $433bn, which allegedly suffered total realised collateral losses of $75.7bn," says the FT. "The claim could run to several billion dollars."

Investors will be looking for reassurance in its third quarter results on Thursday, which City AM says are also expected to reveal a loss of €610m (£542m) for the three months to September.

Deutsche Bank in hiring freeze as it 'braces' for US fine

14 October

Germany's troubled Deutsche Bank is imposing a hiring freeze across all global operations as it "braces" itself for a huge penalty from the US Department of Justice, says The Times.

The lender has stopped recruitment in every department except compliance. It has already agreed 1,000 additional job cuts in its home market, on top of the 3,000 role reductions that had already been set out in Germany, to take total job losses to 9,000.

It's all part of a drive by the bank to prove it can secure its financial position despite the threat of a fine of as much as $14bn (£11bn) over the sale of mortgage-backed securities ahead of the financial crisis.

That figure was the regulators' opening gambit and Deutsche probably won't pay anywhere near that amount. But even a settlement at half that would be well in excess of the $5.4bn (£4.4bn) it has set aside and could force it to raise more cash.

In turn, that means Deutsche proving to investors it is still a viable proposition even though it is currently loss-making, is low in cash reserves relative to global peers and has the threat of this fine and another relating to potentially sanctions-busting trades in Russia.

Hedge fund customers have pulled business as speculation mounts the bank might eventually need a government bailout. Executives told Reuters the withdrawals were "not significant".

More encouraging, Deutsche can still raise debt, albeit at relatively expensive rates, says the New York Times.

It has issued $4.5bn (£3.7bn) worth of bonds since Friday, as it continues its efforts to refinance $30bn (£24.5bn) of loans by the end of the year. The fact it has been able to do so amounts to "a cautious vote of creditor confidence".

This shows at the very least that "investors are pretty confident that the bank will not be declared insolvent" – and it also reinforces Deutsche's €215bn (£194bn) of liquidity.

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