Deutsche Bank May Punish Employees for Personal Trade With Firm
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Bank: ‘transaction may have involved unacceptable conflicts’
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Auditors estimate employees gained about $37 million, WSJ says
Deutsche Bank AG halted bonus payments to a group of employees while examining whether they improperly traded with the firm.
“We are reviewing a transaction that may have involved unacceptable conflicts of interest,” the Frankfurt-based company said in an e-mailed statement, without identifying past or present staff involved. “We will take disciplinary measures where appropriate and review further our controls to minimize the chance of a re-occurrence.”
The internal review focuses on Deutsche Bank’s efforts in 2009 to profit from differences in prices of credit indexes and the underlying debts that compose them, according to a person with knowledge of the situation. Six employees participated in their personal accounts alongside an external hedge fund, the person said, asking not to be identified because the review is confidential. The bank began scrutinizing the trading last year after it was flagged amid a broad push to reduce leverage, the person said.
Internal auditors estimate the current and former employees made about $37 million on the transactions, the Wall Street Journal wrote in a report late Thursday. A former senior executive in the group may stand to reap $9 million on a roughly $1 million investment, according to the newspaper. It cited a spokesman for the banker as saying he had “fulfilled all appropriate compliance procedures, been entirely transparent at all times and denied any wrongdoing.”
Examining Rationale
Auditors haven’t determined whether Deutsche Bank lost money once related transactions are considered, the Journal cited an unidentified person briefed on the matter as saying. But excluding such ancillary revenue, a preliminary assessment shows the deal may have cost the firm more than $60 million, the publication said.
To tap outside capital, the transaction featured a special-purpose vehicle that sold senior and junior notes, the person said. Senior notes went to an insurer, which received a fixed return for taking on credit risk. Junior notes went to a hedge fund and the Deutsche Bank workers, the person said. The junior group got a fixed return, as well as the opportunity to benefit from various fees and trading in price differences in the credit market, the person said.
The bank’s investigation also examines the original rationale and approval process for the transaction, as well as how the deal was supervised, the person said.
A senior Deutsche Bank official in 2009 had granted permission for the trading, contingent on the bank marketing the offering to clients and earning a fair share of profits, the Journal said. People close to the matter disagreed over whether outside clients showed interest, it said. The bank has notified European and U.S. regulators, according to the newspaper.
“Based on our findings to date, we believe that no client was disadvantaged by this transaction,” Deutsche Bank said in a statement. “In accordance with our usual practice, we have suspended the payment of variable and deferred compensation to certain individuals pending the outcome of our ongoing review.”
Source: Bloomberg
