Deutsche Bank fined over ‘improper’ forex conduct

Deutsche Bank will pay $205m for violations of New York banking law stemming from its foreign exchange trading business, in the latest rap on the knuckles from US authorities for Germany’s biggest bank.

The fine from the New York Department of Financial Services comes after the regulator found “improper, unsafe, and unsound conduct” in the German bank’s foreign exchange business between 2007 and 2013, when it was the world’s largest forex dealer.

“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 over the course of many years,” said Maria Vullo, financial services superintendent, in a statement on Wednesday.

US regulators have long had concerns about weaknesses in Deutsche’s controls and technology. Germany’s largest lender has been fined repeatedly in recent years over matters ranging from flawed research reports to a failure to fully comply with the Volcker ban on proprietary trading.

Christian Sewing, its new chief executive, has promised to focus cuts to its investment banking activities in the US, where it has been plagued by a woeful litigation record and growing pressure from regulators.

A unit of the bank failed the qualitative part of the Federal Reserve’s annual stress test of big banks twice in a row before the rules changed in 2017.

Now we can look ahead, instead of watching the rear view mirror

The Federal Deposit Insurance Corporation, the US agency responsible for promoting public confidence in the US financial system, recently put Deutsche on its list of “problem banks” following a move by the Federal Reserve to label it “troubled” a year ago.

When the DFS fined it $425m in January 2017 over Russian “mirror trades”, it noted that the trades were routinely cleared through its US arm.

Under Mr Sewing, who was appointed to replace John Cryan as chief executive in April, the bank has abandoned its two decades-long ambition to be a global leader in investment banking following three consecutive years of losses.

Mr Sewing is convinced that the lender has largely sorted out its legal problems. “Litigation cases are no longer a dominant theme for us,” he told investors at the annual meeting in May, adding that 15 of the 20 most significant issues had been largely or fully resolved.

“Now we can look ahead, instead of watching the rear-view mirror,” said Mr Sewing. In early 2017, the bank agreed to pay $7.2bn for selling toxic mortgage securities in a settlement with the US Department of Justice.

Its shares recently slumped to an all-time low of €9.07. Although they have rebounded slightly the bank still has a market capitalisation below €20bn.

On Wednesday the DFS said it had found problems in Deutsche’s foreign exchange unit, including the use of online chat rooms to attempt to manipulate currency prices and benchmark rates.

On several occasions, Deutsche traders and salespeople swapped customer information, including order data, with competitors at other banks, according to the DFS. It said some traders attempted to manipulate prices by making large trades before and during the window when they were fixed, a practice called “jamming the fix”.

The agency added that some traders misled customers about whether their orders had been fully completed so they could retain profits, and failed to correct and deliberately made errors in trade execution records to benefit themselves and the bank.

The settlement with the DFS requires the bank to improve oversight of its forex trading business. The regulator said Deutsche had co-operated fully with its investigation and had taken proactive steps to resolve the issues.

A Deutsche spokesperson said the settlement was fully covered by its existing provisions.

“Deutsche Bank is pleased to resolve the NYDFS’ investigation into historical practices relating to its FX business and that the NYDFS has recognised our extensive co-operation and remediation.”