One Less Wheeler Dealer
By Phil Mattera for the Dirt Diggers Digest
It’s unfortunate that 18,000 people
will lose their jobs in the process, but it is good news that Deutsche Bank is
leaving the investment banking business.
The world is better off with one less wheeling and dealing financial player that has repeatedly flouted all kinds of laws and regulations.
The world is better off with one less wheeling and dealing financial player that has repeatedly flouted all kinds of laws and regulations.
That tarnished
record dates back to the late 1990s, when Deutsche Bank
acquired New York-based Bankers Trust, which was testing the limits of what a
commercial bank could do while getting embroiled in a series of scandals.
Just a few months after the
acquisition was announced, Bankers Trust pleaded guilty to criminal charges
that its employees had diverted $19 million in unclaimed checks and other
credits owed to customers over to the bank’s own books to enhance its financial
results. The bank paid a $60 million fine to the federal government and another
$3.5 million to New York State.
Deutsche Bank was also having its
own legal problems during this period. In 1998 its offices were raided by German criminal
investigators looking for evidence that the bank helped wealthy customers
engage in tax evasion.
In 2004 investors who purchased what turned out to be abusive tax shelters from DB sued the company in U.S. federal court, alleging that they had been misled (the dispute was later settled for an undisclosed amount). That litigation as well as a U.S. Senate investigation brought to light extensive documentation of DB’s role in tax avoidance.
In 2004 investors who purchased what turned out to be abusive tax shelters from DB sued the company in U.S. federal court, alleging that they had been misled (the dispute was later settled for an undisclosed amount). That litigation as well as a U.S. Senate investigation brought to light extensive documentation of DB’s role in tax avoidance.
In the 2000s, DB was penalized
repeatedly by financial regulators, including a 2004 settlement with the
Securities and Exchange Commission in which it had to pay $87.5 million to settle charges of
conflicts of interest between its investment banking and its research
operations, and a $208 million settlement with federal and state
agencies in 2006 to settle charges of market timing violations.
In 2009 the SEC announced that
DB would provide $1.3 billion in liquidity to investors that the agency had
alleged were misled by the bank about the risks associated with auction rate
securities.
In 2010 the U.S. Attorney for the Southern District of New York announced that DB would pay $553 million and admit to criminal wrongdoing to resolve charges that it participated in transactions that promoted fraudulent tax shelters and generated billions of dollars in U.S. tax losses.
In 2011, the Federal Housing Finance Agency sued DB and other firms for abuses in the sale of mortgage-backed securities to Fannie Mae and Freddie Mac (the case was settled for $1.9 billion in late 2013).
In 2012 the Southern District of New
York announced that DB would pay $202
million to settle charges that its MortgageIT unit had repeatedly made false
certifications to the Federal Housing Administration about the quality of mortgages
to qualify them for FHA insurance coverage.
In 2013 DB agreed to pay a $1.5 million fine to
the Federal Energy Regulatory Commission to settle charges that it had
manipulated energy markets in California in 2010.
In 2013 Massachusetts fined Deutsche Bank $17.5 million for
failing to inform investors of conflicts of interest during the sale of
collateralized debt obligations. That same year, DB was fined $983 million by the European
Commission for manipulation of the LIBOR interest rate index. (Later, in 2015,
it had to agree to pay
$2.5 billion to settle LIBOR allegations brought by U.S. and UK regulators.)
In 2015 the SEC announced that DB would pay $55
million to settle allegations that it overstated the value of its derivatives
portfolio during the height of the financial meltdown. Later that year,
DB agreed to pay $200 million to New York
State regulators and $58 million to the Federal Reserve to settle allegations
that it violated U.S. economic sanctions against countries such as Iran.
In January 2017 the bank reached a
$7.2 billion settlement of a Justice Department case involving
the sale of toxic mortgage securities during the financial crisis. That same
month, it was fined $425 million by
New York State regulators to settle allegations that it helped Russian
investors launder as much as $10 billion through its branches in Moscow, New
York and London.
In March 2017 Deutsche Bank
subsidiary DB Group Services (UK) Limited was ordered by the U.S. Justice Department
to pay a $150 million criminal fine in connection with LIBOR manipulation.
The following month, the Federal Reserve fined DB $136 million for interest rate manipulation and $19 million for failing to maintain an adequate Volcker rule compliance program. Shortly thereafter, the Fed imposed another fine, $41 million, for anti-money-laundering deficiencies. In October 2017 DB paid $220 million to settle multistate litigation relating to LIBOR.
The following month, the Federal Reserve fined DB $136 million for interest rate manipulation and $19 million for failing to maintain an adequate Volcker rule compliance program. Shortly thereafter, the Fed imposed another fine, $41 million, for anti-money-laundering deficiencies. In October 2017 DB paid $220 million to settle multistate litigation relating to LIBOR.
In 2018 DB paid a total of $100
million to the Commodity Futures Trading Commission–$70 million for interest-rate
manipulation and $30 million for manipulation of metals
futures contracts.
As a result of all these and other
cases, Deutsche Bank ranks seventh among parent companies in Violation
Tracker, with more than $12 billion in total penalties.
Not all these cases arose out of
DB’s investment banking business. Its commercial banking operation, which will
continue, was responsible for keeping the Trump Organization afloat when other
banks shunned the shaky company. And it has just come to light that DB
provided loans to the notorious Jeffrey Epstein.
Deutsche Bank’s history of
controversies may not be over.