7 ms·

Deutsche Bank to Pay Record $2.5B to Resolve Libor

69 points by svtrent 12y ago

coldcode 12y ago
For a big bank, that's pocket change.
- sz4kerto 12y ago
  Not exactly, no. This is somewhere between 2 to 4 quarterly profit for DB.
  - spuiszis 12y ago
    This reduces their taxable income, so part of it is a benefit to DB so the real number they pay is around ~67% of the headline number. We also have no idea how profitable LIBOR manipulation is over several years. I can imagine incredible lucrative.
    - fitchjo 12y ago
      Actually, at least for the US, fines paid to governmental agencies are generally non-deductible and so DB will take the full brunt of the fine to the bottom line.
      - spuiszis 12y ago
        I agree in theory but in practice, it's not always the full amount but you get things like BofA deducting $12bn pre-tax from their $17bn mortgage settlement[1] or JPMorgan able to deduct a large amount of their $13bn fine[2]. There is always a loophole somewhere. [1]http://www.forbes.com/sites/robertwood/2014/08/21/bofa-grabs-12-billion-tax-write-off-from-17-billion-mortgage-settlement/ http://www.forbes.com/sites/robertwood/2014/08/21/bofa-grabs... [2]http://www.nytimes.com/2015/04/24/business/dealbook/deutsche-bank-settlement-rates.html?ref=dealbook http://www.nytimes.com/2015/04/24/business/dealbook/deutsche... [3]http://www.newsweek.com/2014/11/07/giant-penalties-are-giant-tax-write-offs-wall-street-279993.html http://www.newsweek.com/2014/11/07/giant-penalties-are-giant...
    - cm2187 12y ago
      Not really. My understanding is that there were really two manipulations. One (the most morally reprehensible) happened before the crisis, but affected the rounding of the libor fixings. Pennies to most people but serious money for a few trading desks holding a massive open position on futures. I don't know how much money they made but my guess is that it is a few millions per year per trader. Peanuts for a large bank but big enough to a few individual traders. The second (morally more ambiguous, but with a much larger impact to the market) occurred during the crisis. Basically banks under-estimating their cost of funding published through the Libor fixing contributions in order to not appear having trouble raising money. This may have resulted in reducing their overall funding cost but that was certainly not the motivation (banks typically try not to have a large directional exposure to interest rates, so if Libor goes down, it also means they receive less on their assets). This was really about messaging to the market that they are not in trouble, in a world were runs on the bank were happening pretty much weekly. These fines are an order of magnitude of the gains made on these manipulation. Which is precisely the intention of the regulators.
  - moe 12y ago
    And how much did they make from the Libor manipulation?
    - retube 12y ago
      Almost certainly nothing. It's not clear that any attempts to manipulate were successful, or moved the fixing in any non-immaterial way. Furthermore there's no guarantee a successful move would benefit a bank: whilst it might make an individual trader's book money, the bank's net position might be the other way.
rayiner 12y ago
This is for the regulatory investigations. There will also be private civil suits. Those will be made difficult by the need to prove damages: http://www.bloomberg.com/bw/articles/2013-06-27/calculating-the-cost-of-the-libor-scandal-to-investors http://www.bloomberg.com/bw/articles/2013-06-27/calculating-....
late2part 12y ago
This should be a larger fine. People need to go to jail. These people corrupted of the primary substrates of the financial system. This shows how endemic the corruption is and how little our system punishes people for cheating. Either the populace really doesn't care, or else the system is corrupt and the financial people have undue influence on the government. Either way, it is bad and it needs to change.
- misiti3780 12y ago
  welcome to the western world - where no one goes to jail for white collared crimes!!!
- easytiger 12y ago
  Many people have gone to jail for this and more will be. Still in progress. The merits of the actual impact of this and completely out of wack use of fines as revenue raising is another matter
  - beagle3 12y ago
    They have? Can you cite sources? The only mention of anyone possibly going to jail I can find (rather than just the general idea that someone might go to jail) is [0] (and another mention in RT). No names; no final sentencing. As if it never happened. [0] http://www.theguardian.com/business/2014/oct/07/banker-pleads-guilty-libor-rigging-rate-fixing http://www.theguardian.com/business/2014/oct/07/banker-plead...
- bboreham 12y ago
  13 people charged here: http://www.sfo.gov.uk/press-room/latest-press-releases/press-releases-2014/libor-investigation-further-charge-.aspx http://www.sfo.gov.uk/press-room/latest-press-releases/press... two more here: http://www.justice.gov/opa/pr/two-former-rabobank-traders-indicted-alleged-manipulation-us-dollar-yen-libor-interest-rates http://www.justice.gov/opa/pr/two-former-rabobank-traders-in...
  - spuiszis 12y ago
bko 12y ago
I think it's important to know what Libor is and how it's determined. > Each morning, just before 11 a.m. Greenwich Mean Time, a group of major banks are asked the rate at which they could borrow funds from other banks. The banks confidentially send their results for each of the 15 loan maturities - ranging from overnight to one year - to the market intelligence firm Thomson Reuters. The organization throws out figures in the highest and lowest quartile and averages the remaining half. [0] The rate is used to determine the interest paid on some mortgages (adjustable rate mortgages) as well as some securities (floating rate, pegged to Libor and swaps). You don't need to know too much about finance to suspect that the method of determining Libor (informal polling of banks) is ripe for manipulation. I don't think the manipulation was biased in any one direction but probably biased based on the particular banks opportunities for that day. Anyone investing in these products or with floating rate mortgages should (in theory) understand how their products work and understand the implications of the method that Libor is set. This isn't meant to excuse collusion. Just because something is completely transparent and easily gamed doesn't excuse dishonesty. My comment is just meant to temper the response and perhaps consider a better system for determining benchmarks. [0] http://www.investopedia.com/ask/answers/12/how-is-libor-determined.asp#ixzz3Y8kc1mbR http://www.investopedia.com/ask/answers/12/how-is-libor-dete...
- bboreham 12y ago
  > but probably biased based on the particular banks opportunities for that day. Not the banks, individuals. The people doing the manipulating were paid on P&L from particular sub-sets of the bank's overall position (their 'books'). So it is entirely possible that while those people's P&L went up on a given day, the bank's overall P&L went down.
  - easytiger 12y ago
    And the counter party's pnl went up
    - bboreham 12y ago
      The bank as a whole has thousands or millions of counterparties.
steamy 12y ago
and yet no single conviction for any bankster involved in all of these corruption scandals. Just fine the shareholders and fill the pockets of the fat cats in the govt to buy their silence and let the executives go free to keep plundering people's money. A win-win for all except for we the people!
rorykoehler 12y ago
Banks should receive trading sanctions too (like doping bans for athletes). If all they have to do is pay their way out they will always take the risk of doing illegal business and hope to get away with it. This risky behaviour is so ingrained in the financial industries culture that it's clear the default approach of high risk actions while hoping for the best isn't going to go away without more and more serious deterrents. This along with heavy prison sentences all 'round should help curb the corruption a little.
- cmdkeen 12y ago
  The problem with trading bans is that they effectively kill the bank, or a substantial chunk - which then causes all the knock on effects of a bank failing which might very well be more expensive to the Government / society in the long run. It all comes back to "too big to fail".
  - rorykoehler 12y ago
    They could be forced to split off the culpable area of the business and sell it at a below market value or even free price.
    - ryanlol 12y ago
      That's probably a good solution if your intention is to destroy any trust that's left in the banking system.
      - rorykoehler 12y ago
        I have zero trust in the banking system or even the monetary system as it stands. I only partake because I have no other viable choice. The system is so flawed that it's doomed to fail. It's not a question of if but when.
marcusgarvey 12y ago
> The Justice Department levied a $775 million penalty and will install a monitor at the bank for three years to ensure compliance with the terms of the deferred prosecution agreement. These deferred prosecution agreements are horrible. Every major bank has SEVERAL of them. Deter much? Absolutely not. Here's what a recent editorial in the Financial Times had to say about this [1]: In the US, the most blatant expression of the failure to rein in the financial industry is the use of deferred prosecution agreements. These are deals which, despite sufficient evidence for criminal prosecutions, allow wrongdoers to pay fines and make commitments to improved conduct in return for avoiding the admission of criminal guilt. In an important speech last Wednesday, US Senator Elizabeth Warren condemned the widespread use of DPAs against financial industry lawbreakers. Her main argument is that DPAs’ main punitive tool — fines — have far too little deterrent effect. A fine paid by a corporation is essentially a raid on its shareholders’ funds. What is more, the lag from the commission of a financial crime to the implementation of a DPA is long. Both mean that even huge fines (some have been in the billions) are highly unlikely to make much difference to the economic prospects of the responsible individuals when they decide whether or not to break the law. To put it simply, too many get away with cheating. Criminal prosecutions would stand a better chance of holding culpable individuals to account — and therefore to discourage wrongdoing in the first place. Deterrence aside, there is also an important democratic value in lawbreakers being publicly branded as such. So Ms Warren is right. DPAs, originally intended to deal with low-stake crimes with little chance of repetition, have become a blight on a financial sector that has proved capable of crimes that are neither low-stake nor one-off. http://www.ft.com/cms/s/0/f26a9acc-e515-11e4-a02d-00144feab7de.html http://www.ft.com/cms/s/0/f26a9acc-e515-11e4-a02d-00144feab7...
- cmdkeen 12y ago
  The Economist also raised the point recently that these "offers" from the Government are essentially shakedowns, the risk to the bank if they actually fought the charges is so great that it is never in their interest to do anything but pay up. When you consider that States as well as the Federal Government are capable of doing this the potential for shenanigans increases. In both cases justice is not done, wrongdoers not actually punished etc.
dankohn1 12y ago
If you want change, look at Elizabeth Warren's two strokes and you're out proposal [0]: [0] http://www.vox.com/2015/4/15/8420789/elizabeth-warren-prosecutions http://www.vox.com/2015/4/15/8420789/elizabeth-warren-prosec...
nsajko 12y ago
Another issue (in addition to executives not going to jail) is that monetary fines are inefficient against large corporations, especially banks, because if the fine is significant, it hurts a whole economy. A possible solution could be equity fines, but that's not yet practiced anywhere. Edit: an equity fine would be if a corporation is forced to make more stocks, which are taken as a fine and sold.
- serve_yay 12y ago
  I guess it doesn't count as moral hazard when the banks have no incentive to refrain from behaving poorly.
GCA10 12y ago
Another reason not to applaud: the U.S. and UK governments have been furiously manipulating interest rates themselves since 2008, through the big bond purchases that drive short-term rates near zero. These policies didn't help the economy as much as hoped. They also destroyed small savers' ability to earn interest. But the politicians pressed on anyway. What if the government fined itself $25 billion and distributed the money to the public? I'd like that settlement more. By contrast, this Libor settlement actually taxes the public -- because the ultimate owners of bank shares are our very own pension funds or 401ks -- and then gives the $$ to the government. Meanwhile, the rogue traders get no punishment whatsoever. I can't find anything in this deal to like.
jgalt212 12y ago
Somebody please name names here. While the crimes did occur at Deutsche Bank, it was actual human beings that were the bad actors. Who fixed the rates? And why aren't they going to jail?

69 points by svtrent 12y ago

coldcode 12y ago

For a big bank, that's pocket change.

sz4kerto 12y ago
Not exactly, no. This is somewhere between 2 to 4 quarterly profit for DB.
- spuiszis 12y ago
  This reduces their taxable income, so part of it is a benefit to DB so the real number they pay is around ~67% of the headline number. We also have no idea how profitable LIBOR manipulation is over several years. I can imagine incredible lucrative.
  - fitchjo 12y ago
    Actually, at least for the US, fines paid to governmental agencies are generally non-deductible and so DB will take the full brunt of the fine to the bottom line.
    - spuiszis 12y ago
      I agree in theory but in practice, it's not always the full amount but you get things like BofA deducting $12bn pre-tax from their $17bn mortgage settlement[1] or JPMorgan able to deduct a large amount of their $13bn fine[2]. There is always a loophole somewhere. [1]http://www.forbes.com/sites/robertwood/2014/08/21/bofa-grabs-12-billion-tax-write-off-from-17-billion-mortgage-settlement/ http://www.forbes.com/sites/robertwood/2014/08/21/bofa-grabs... [2]http://www.nytimes.com/2015/04/24/business/dealbook/deutsche-bank-settlement-rates.html?ref=dealbook http://www.nytimes.com/2015/04/24/business/dealbook/deutsche... [3]http://www.newsweek.com/2014/11/07/giant-penalties-are-giant-tax-write-offs-wall-street-279993.html http://www.newsweek.com/2014/11/07/giant-penalties-are-giant...
  - cm2187 12y ago
    Not really. My understanding is that there were really two manipulations. One (the most morally reprehensible) happened before the crisis, but affected the rounding of the libor fixings. Pennies to most people but serious money for a few trading desks holding a massive open position on futures. I don't know how much money they made but my guess is that it is a few millions per year per trader. Peanuts for a large bank but big enough to a few individual traders. The second (morally more ambiguous, but with a much larger impact to the market) occurred during the crisis. Basically banks under-estimating their cost of funding published through the Libor fixing contributions in order to not appear having trouble raising money. This may have resulted in reducing their overall funding cost but that was certainly not the motivation (banks typically try not to have a large directional exposure to interest rates, so if Libor goes down, it also means they receive less on their assets). This was really about messaging to the market that they are not in trouble, in a world were runs on the bank were happening pretty much weekly. These fines are an order of magnitude of the gains made on these manipulation. Which is precisely the intention of the regulators.
- moe 12y ago
  And how much did they make from the Libor manipulation?
  - retube 12y ago
    Almost certainly nothing. It's not clear that any attempts to manipulate were successful, or moved the fixing in any non-immaterial way. Furthermore there's no guarantee a successful move would benefit a bank: whilst it might make an individual trader's book money, the bank's net position might be the other way.

rayiner 12y ago

This is for the regulatory investigations. There will also be private civil suits. Those will be made difficult by the need to prove damages: http://www.bloomberg.com/bw/articles/2013-06-27/calculating-the-cost-of-the-libor-scandal-to-investors http://www.bloomberg.com/bw/articles/2013-06-27/calculating-....

late2part 12y ago

This should be a larger fine. People need to go to jail. These people corrupted of the primary substrates of the financial system. This shows how endemic the corruption is and how little our system punishes people for cheating. Either the populace really doesn't care, or else the system is corrupt and the financial people have undue influence on the government. Either way, it is bad and it needs to change.

misiti3780 12y ago
welcome to the western world - where no one goes to jail for white collared crimes!!!
easytiger 12y ago
Many people have gone to jail for this and more will be. Still in progress. The merits of the actual impact of this and completely out of wack use of fines as revenue raising is another matter
- beagle3 12y ago
  They have? Can you cite sources? The only mention of anyone possibly going to jail I can find (rather than just the general idea that someone might go to jail) is [0] (and another mention in RT). No names; no final sentencing. As if it never happened. [0] http://www.theguardian.com/business/2014/oct/07/banker-pleads-guilty-libor-rigging-rate-fixing http://www.theguardian.com/business/2014/oct/07/banker-plead...
bboreham 12y ago
13 people charged here: http://www.sfo.gov.uk/press-room/latest-press-releases/press-releases-2014/libor-investigation-further-charge-.aspx http://www.sfo.gov.uk/press-room/latest-press-releases/press... two more here: http://www.justice.gov/opa/pr/two-former-rabobank-traders-indicted-alleged-manipulation-us-dollar-yen-libor-interest-rates http://www.justice.gov/opa/pr/two-former-rabobank-traders-in...
- spuiszis 12y ago

bko 12y ago

I think it's important to know what Libor is and how it's determined. > Each morning, just before 11 a.m. Greenwich Mean Time, a group of major banks are asked the rate at which they could borrow funds from other banks. The banks confidentially send their results for each of the 15 loan maturities - ranging from overnight to one year - to the market intelligence firm Thomson Reuters. The organization throws out figures in the highest and lowest quartile and averages the remaining half. [0] The rate is used to determine the interest paid on some mortgages (adjustable rate mortgages) as well as some securities (floating rate, pegged to Libor and swaps). You don't need to know too much about finance to suspect that the method of determining Libor (informal polling of banks) is ripe for manipulation. I don't think the manipulation was biased in any one direction but probably biased based on the particular banks opportunities for that day. Anyone investing in these products or with floating rate mortgages should (in theory) understand how their products work and understand the implications of the method that Libor is set. This isn't meant to excuse collusion. Just because something is completely transparent and easily gamed doesn't excuse dishonesty. My comment is just meant to temper the response and perhaps consider a better system for determining benchmarks. [0] http://www.investopedia.com/ask/answers/12/how-is-libor-determined.asp#ixzz3Y8kc1mbR http://www.investopedia.com/ask/answers/12/how-is-libor-dete...

bboreham 12y ago
> but probably biased based on the particular banks opportunities for that day. Not the banks, individuals. The people doing the manipulating were paid on P&L from particular sub-sets of the bank's overall position (their 'books'). So it is entirely possible that while those people's P&L went up on a given day, the bank's overall P&L went down.
- easytiger 12y ago
  And the counter party's pnl went up
  - bboreham 12y ago
    The bank as a whole has thousands or millions of counterparties.

steamy 12y ago

and yet no single conviction for any bankster involved in all of these corruption scandals. Just fine the shareholders and fill the pockets of the fat cats in the govt to buy their silence and let the executives go free to keep plundering people's money. A win-win for all except for we the people!

rorykoehler 12y ago

Banks should receive trading sanctions too (like doping bans for athletes). If all they have to do is pay their way out they will always take the risk of doing illegal business and hope to get away with it. This risky behaviour is so ingrained in the financial industries culture that it's clear the default approach of high risk actions while hoping for the best isn't going to go away without more and more serious deterrents. This along with heavy prison sentences all 'round should help curb the corruption a little.

cmdkeen 12y ago
The problem with trading bans is that they effectively kill the bank, or a substantial chunk - which then causes all the knock on effects of a bank failing which might very well be more expensive to the Government / society in the long run. It all comes back to "too big to fail".
- rorykoehler 12y ago
  They could be forced to split off the culpable area of the business and sell it at a below market value or even free price.
  - ryanlol 12y ago
    That's probably a good solution if your intention is to destroy any trust that's left in the banking system.
    - rorykoehler 12y ago
      I have zero trust in the banking system or even the monetary system as it stands. I only partake because I have no other viable choice. The system is so flawed that it's doomed to fail. It's not a question of if but when.

marcusgarvey 12y ago

> The Justice Department levied a $775 million penalty and will install a monitor at the bank for three years to ensure compliance with the terms of the deferred prosecution agreement. These deferred prosecution agreements are horrible. Every major bank has SEVERAL of them. Deter much? Absolutely not. Here's what a recent editorial in the Financial Times had to say about this [1]: In the US, the most blatant expression of the failure to rein in the financial industry is the use of deferred prosecution agreements. These are deals which, despite sufficient evidence for criminal prosecutions, allow wrongdoers to pay fines and make commitments to improved conduct in return for avoiding the admission of criminal guilt. In an important speech last Wednesday, US Senator Elizabeth Warren condemned the widespread use of DPAs against financial industry lawbreakers. Her main argument is that DPAs’ main punitive tool — fines — have far too little deterrent effect. A fine paid by a corporation is essentially a raid on its shareholders’ funds. What is more, the lag from the commission of a financial crime to the implementation of a DPA is long. Both mean that even huge fines (some have been in the billions) are highly unlikely to make much difference to the economic prospects of the responsible individuals when they decide whether or not to break the law. To put it simply, too many get away with cheating. Criminal prosecutions would stand a better chance of holding culpable individuals to account — and therefore to discourage wrongdoing in the first place. Deterrence aside, there is also an important democratic value in lawbreakers being publicly branded as such. So Ms Warren is right. DPAs, originally intended to deal with low-stake crimes with little chance of repetition, have become a blight on a financial sector that has proved capable of crimes that are neither low-stake nor one-off. http://www.ft.com/cms/s/0/f26a9acc-e515-11e4-a02d-00144feab7de.html http://www.ft.com/cms/s/0/f26a9acc-e515-11e4-a02d-00144feab7...

cmdkeen 12y ago
The Economist also raised the point recently that these "offers" from the Government are essentially shakedowns, the risk to the bank if they actually fought the charges is so great that it is never in their interest to do anything but pay up. When you consider that States as well as the Federal Government are capable of doing this the potential for shenanigans increases. In both cases justice is not done, wrongdoers not actually punished etc.

dankohn1 12y ago

If you want change, look at Elizabeth Warren's two strokes and you're out proposal [0]: [0] http://www.vox.com/2015/4/15/8420789/elizabeth-warren-prosecutions http://www.vox.com/2015/4/15/8420789/elizabeth-warren-prosec...

nsajko 12y ago

Another issue (in addition to executives not going to jail) is that monetary fines are inefficient against large corporations, especially banks, because if the fine is significant, it hurts a whole economy. A possible solution could be equity fines, but that's not yet practiced anywhere. Edit: an equity fine would be if a corporation is forced to make more stocks, which are taken as a fine and sold.

serve_yay 12y ago
I guess it doesn't count as moral hazard when the banks have no incentive to refrain from behaving poorly.

GCA10 12y ago

Another reason not to applaud: the U.S. and UK governments have been furiously manipulating interest rates themselves since 2008, through the big bond purchases that drive short-term rates near zero. These policies didn't help the economy as much as hoped. They also destroyed small savers' ability to earn interest. But the politicians pressed on anyway. What if the government fined itself $25 billion and distributed the money to the public? I'd like that settlement more. By contrast, this Libor settlement actually taxes the public -- because the ultimate owners of bank shares are our very own pension funds or 401ks -- and then gives the $$ to the government. Meanwhile, the rogue traders get no punishment whatsoever. I can't find anything in this deal to like.

jgalt212 12y ago

Somebody please name names here. While the crimes did occur at Deutsche Bank, it was actual human beings that were the bad actors. Who fixed the rates? And why aren't they going to jail?