Deutsche Bank nears Libor settlement

A long-running investigation into Wall Street’s manipulation of interest rates is heading into a stark final chapter as authorities around the globe push Deutsche Bank to pay a record penalty and accept a criminal guilty plea for the unit at the centre of the case.

Deutsche Bank, Germany’s largest financial institution and one of several banks linked to the gaming of interest rates, is in talks to resolve the case as soon as this month, according to people briefed on the matter. A deal — which involves federal prosecutors as well as New York State’s financial regulator and regulators in London and Washington — would be one of the last cases to arise from the sweeping investigation into the London interbank offered rate, or Libor.

The contours of Deutsche Bank’s planned settlement, described by the people briefed on the matter who were not authorised to speak publicly, show the perils of going last. Collectively, the authorities are expected to collect more than $1.5 billion from Deutsche Bank, eclipsing all past settlements with banks accused of Libor manipulations. The Justice Department also conditioned the deal on one of the bank’s British subsidiaries’ pleading guilty to fraud, in what would be the most significant banking unit to accept a criminal plea in the Libor investigation.

A settlement, while providing some closure to Deutsche Bank, would not end the bank’s legal problems. Just as lawmakers cast Goldman Sachs as a villain in the wake of the financial crisis, and as JPMorgan Chase’s platinum reputation suffered from multiple investigations, Deutsche Bank now appears to be financial regulators’ bête noire — at least for the moment.

The bank also faces investigations into currency manipulation and violations of United States sanctions against countries like Iran. Since the first Libor settlement in 2012, when Barclays paid $450 million and avoided criminal prosecution, fines have climbed and guilty pleas have become more common. Against that backdrop, prosecutors are also pursuing guilty pleas from banks suspected of manipulating the prices of foreign currencies. In recent weeks, prosecutors have negotiated with four banks — JPMorgan Chase, Citigroup, Barclays and the Royal Bank of Scotland — about having one of their large units plead guilty. Those cases, which would include the first guilty pleas from giant American banks in decades, could be announced as soon as next month.

Still, the new cases may not mollify critics who question why no top Wall Street executive went to prison over the 2008 financial crisis. And now, although the Justice Department has criminally charged 12 people for manipulating Libor, three of whom pleaded guilty, it is unclear whether any Deutsche Bank employee will face charges in the case.
Probe began seven years ago

The Libor investigation, which began seven years ago with a single investigator at the Commodity Futures Trading Commission in Washington, has not wanted for lack of government enthusiasm. Deutsche Bank is pitted against four agencies: the Justice Department’s criminal division; the New York State Department of Financial Services, led by Benjamin M. Lawsky; the C.F.T.C.; and the Financial Conduct Authority of Britain, which separately cleared the bank in the currency investigation.

It is no coincidence that Libor, an average of how much banks say they would pay to borrow from one another, struck a nerve with government authorities. As a benchmark for trillions of dollars in credit-card loans and other financial instruments, Libor is a cornerstone of the financial marketplace. Evidence that banks lied about what they would pay if borrowing from other banks — using their submissions to push reference rates up or down to suit their own financial needs — set off investigations around the globe.
Since December 2013, the European Commission has penalized several banks suspected of colluding to fix benchmark interest rates. Deutsche Bank paid more than $900 million, more than any other bank, partly because of its outsize share of the market for derivative securities tied to interest rates.