Home ListingMay 26, 2015

Deutsche Bank To Pay $55M, Ending Derivatives Probe

The German banking giant settles yet another investigation while shareholders demand a revamp of the management board.

Reported by Featured Author

Deutsche Bank has been fined $55 million by the US Securities and Exchange Commission (SEC) for misstating the value of a complex derivatives portfolio during the financial crisis.

According to the regulator, the banking giant neither admitted nor denied allegations of underestimating “a material risk for potential losses estimated to be in the billions of dollars.”

“Deutsche Bank failed to make reasonable judgments when valuing its positions and lacked robust internal controls over financial reporting,” said Andrew Ceresney, director of the SEC’s division of enforcement.

By incorrectly valuing its derivatives portfolio, the bank underestimated its risks by anywhere between $1.5 billion and $3.3 billion, the SEC said.

“Deutsche Bank failed to make reasonable judgments when valuing its positions and lacked robust internal controls over financial reporting.” —SECIn a response to the SEC’s statements, Deutsche Bank said these risks “never materialized” and it never experienced any losses from the misrepresentations in the financial accounts.

Furthermore, it maintained that there was no “reliable method” for measuring risk in the portfolio following the collapse of Lehman Brothers.

Tuesday’s settlement is the latest in Deutsche Bank’s legal woes.

The bank was fined $2.5 billion last month to settle charges of manipulating interest rate benchmarks with regulators in the US and the UK. And according to the company’s 2014 annual report, it still faces fines related to foreign exchange and mortgage and asset-backed securities.

Deutsche Bank also suffered major shareholder criticism last week as UK fund manager Hermes called for an overhaul of the management board following large fines and falling profits.

“We urge the bank’s supervisory board to review the composition of the management board, taking its performance over the last three years and its new strategy into account,” Hermes said in a statement on May 20.

The firm voted against Deutsche Bank’s reshuffling plan, as a way to express “our lack of confidence in the management board.”

Hermes said the bank had wasted time and credibility by failing to recognize the need for “changes to [its] structure and business model required to sustainably create value in a changed regulatory environment.”

The firm also criticized Deutsche Bank’s recent settlement for LIBOR rigging and said the fine shone light onto the “severity of the misconduct” of the bank’s employees.