Fed fines Deutsche Bank over forex, oversight failures

The headquarters of Germany's Deutsche Bank in Frankfurt, Germany, on Jan 26, 2016.
The headquarters of Germany's Deutsche Bank in Frankfurt, Germany, on Jan 26, 2016. PHOTO: REUTERS

WASHINGTON • The US Federal Reserve has ordered German banking giant Deutsche Bank to pay more than US$150 million (S$209 million) in civil fines for bad foreign exchange practices and lax oversight.

Deutsche Bank's unit in the United States must pay US$136.9 million for "unsafe and unsound practices" in the forex markets, the American central bank said in a statement on Thursday.

The German lender - which raised US$8.5 billion from investors this month to recapitalise - admitted to the Fed in March last year that it still lacked adequate systems for keeping tabs on dealings that might run afoul of the Volcker Rule which prohibits banks from making certain kinds of investments with their own accounts.

The Fed said "significant gaps existed across key aspects of Deutsche Bank's Volcker Rule compliance programme".

It also imposed a US$19.7 million fine on the firm for failure to maintain an adequate compliance programme for the Volcker Rule, and ordered the largest bank in Germany to improve its oversight and controls relating to forex trading and the Volcker Rule.

Deutsche was hit with the Fed's first major fine for failing to ensure traders abide by the Volcker Rule's ban on risky market bets - and will pay even more for letting currency desks chat online with competitors, allegedly revealing positions.

Chief executive officer John Cryan, who took over almost two years ago, is trying to refocus on growth after investigations and litigation sapped years of earnings, pushing the firm to tap investors to shore up capital.

The latest penalties bring the German lender's total disclosed fines and legal settlements since the start of 2008 to US$14.7 billion, the most of any European bank, and highlight the weakness of its controls after growing aggressively to compete with American investment banks.

"It's pretty unpleasant that they stand out with the Volcker Rule violations," Mr Andreas Plaesier, an analyst at MM Warburg with a hold rating on Deutsche Bank shares, said by phone. "It's really surprising just how many controls failed across the bank in recent years and it doesn't cast a good light on former management."

BLOOMBERG, AGENCE FRANCE-PRESSE

A version of this article appeared in the print edition of The Straits Times on April 22, 2017, with the headline 'Fed fines Deutsche Bank over forex, oversight failures'. Print Edition | Subscribe