Deutsche Bank settles Libor manipulation investigation for $2.5 billion

Deutsche Bank will pay $2.5 billion to an array of New York, U.S. and British regulators to settle a long-running investigation into alleged manipulation of a key interest rate benchmark known as Libor.

The settlement, the largest rate-manipulation settlement so far, is the latest iteration of a string of scandals to have rocked the banking industry in the years after the financial crisis of 2008.

As part of its settlement with the U.S. Justice Department, a unit of the German banking giant agreed to plead guilty to a single count of wire fraud for engaging in a scheme to defraud so-called counterparties -- its trading partners -- while the parent company agreed to a deferred prosecution agreement which requires the bank to continue cooperating with federal prosecutors in a continuing investigation and to retain a corporate monitor for three years.

In all, Deutsche Bank will pay $775 million to the Justice Department, $800 million to the federal Commodity Futures Trading Commission, $600 million to the New York State Department of Financial Services and about $340 million to Britain’s Financial Conduct Authority.

“Deutsche Bank employees engaged in a widespread effort to manipulate benchmark interest rates for financial gain,” Benjamin M. Lawsky, superintendent of the New York Department of Financial Services, said. “While a number of the employees involved in misconduct have already left the bank, those that remain are being terminated or banned from the New York banking system. We must remember that markets do not just manipulate themselves: It takes deliberate wrongdoing by individuals.”

Libor, the London Interbank Offered Rate, is a benchmark interest rate used in financial markets around the world and is routinely written into standard lending documents, used to set rates for mortgages and student loans. Since the 1980s, it has been compiled daily under the auspices of the British Bankers’ Assn. from data reported by 18 banks, which were supposed to have provided good-faith estimates of the rate at which the bank believed it could borrow on a given day.

Authorities alleged that from 2005 through 2011, traders at Deutsche Bank and elsewhere routinely manipulated the estimates they reported to benefit their own trading positions. Court documents accompanying the Deutsche Bank settlement submitted Thursday show what regulators called the cavalier and brazen atmosphere in which the manipulation was done.

On Sept. 7, 2006, for instance, a London desk head attempted to persuade a banker at another bank to falsify its estimate.

“I’m begging u, don’t forget me… pleassssssssssssssseeeeeeeeee… I’m on my knees…,” the trader said, according to court documents. After an exchange, the London desk head continued, “please pal, insist as much as you can… … I’m beggin u… can u beg [another banker] guy as well?” The banker agreed, “ok, I’m telling him.”

In a statement, Deutsche Bank said it had disciplined or dismissed individuals involved in the trader misconduct, strengthened its control teams, procedures and record-keeping, and is conducting a thorough review of how the bank addressed the problem when it came to light.

The bank said, however, that no current or past member of its board of directors has been found to have been involved or even to have been aware of the misconduct.

“We deeply regret this matter but are pleased to have resolved it,” Jürgen Fitschen and Anshu Jain, co-chief executives of Deutsche Bank, said in a joint statement. “The bank accepts the findings of the regulators.”

Among other banks to settle Libor cases have been Switzerland’s UBS AG, the Royal Bank of Scotland, and Barclays PLC. The Libor cases led to even wider probes into manipulation of foreign currency exchange markets involving U.S. megabanks. Among those that have settled so far are Citigroup Inc., JP Morgan Chase & Co., and HSBC Bank PLC.

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