Deutsche Bank The Fall Guy

Deutsche Bank’s effort to put the past behind it is proving difficult. U.S. regulators have criticized its management culture, while its co-chief executive, Jürgen Fitschen, is being forced to face a public court trial for crimes allegedly committed by his former bosses.
Back in the dock: Jürgen Fitschen appeared in a Munich court for the second day on Tuesday. Soure: Action Press

On Tuesday, as if he didn't have enough problems, Deutsche Bank Co-Chief Executive Jürgen Fitschen heard this question posed rhetorically by a judge in a Munich courtroom: Did Deutsche Bank's top management try to "collectively'' lead authorities astray in a civil trial brought by the heirs of the late media tycoon, Leo Kirch?

Mr. Fitschen and four of his former bosses -- former chief executives Rolf Breuer and Josef Ackermann, and two former board members --  are facing criminal charges for allegedly false testimony in the civil case brought by the heirs of Mr. Kirch, whose media empire crumbled in 2002 after Mr. Breuer, in an interview, suggested that creditors were no longer loaning money to the media firm.

Deutsche Bank settled the civil case in 2014 by paying a €775 million settlement. But Mr. Fitschen, a mid-level executive at the time of the Kirch collapse, is now the most prominent face in what may be a month-longs trial in Munich, another blow for Deutsche Bank, which is still reeling from its record $2.5 billion fine last month imposed by U.S. and U.K. regulators in the Libor rates scandal.

Some of the bank's traders in London conspired with other global banks to set the global interest rate benchmarks. Other banks fined include Switzerland’s UBS, Britain’s Barclays Bank and Dutch Rabobank. But Deutsche Bank was fined the most by far because, as the U.K. authorities said, its executives declined at first to cooperate with investigators.

The bank is being dogged by hundreds of other legal cases that have forced managers set aside billions for potential legal settlements, weighing on earnings and forcing Mr. Fitschen and his counterpart, Anshu Jain, to sell off its Postbank retail network.

The Munich trial, overseen by Presiding Judge Peter Knoll, known as one of the toughest on corporate criminals in Germany, has provided a nearly daily source of public shame and papparazi fodder for Deutsche Bank since the trial began last week.

The courtroom photographs of Mr. Fitschen, a manager with a squeaky clean image in Germany, have not helped the bank, which is in the midst of a restructuring that has failed to convince many investors. More importantly, the court case and fine have complicated efforts by Mr. Fitschen and Mr. Jain to convince a skeptical German public that Deutsche Bank has learned from the mistakes of its past.

The spotlight remains firmly fixated on the events of the past Mr. Fitschen and Mr. Jain had promised to put behind them when they took the reins of Germany's largest bank in 2012.

U.S. regulators believe high-level managers were made aware of abnormalities in the interest rate market and did nothing to stop it.

The Libor rate-fixing scandal centers on actions in the run-up to the 2008 global financial crisis, and the Munich trial is based on the collapse of the Kirch media empire, which has long since faded from the German media scene.

 

The trouble is, some executives whose actions are being questioned still wield power at Deutsche Bank.

One is Michele Faissola, the current head of Deutsche Bank's asset and wealth management, who was mentioned by investigators in the Libor affair.

Libor is the average rate at which banks borrow from each other. It is calculated from rates submitted by leading banks. The scandal also involved fixing Euribor, the Euro Interbank Offered Rate, another important benchmark.

U.S. regulators believe Deutsche Bank high-level managers were made aware of abnormalities in the interest rate market and did nothing to stop it.

“The misconduct at the Bank was systemic and involved various levels of employees, including members of senior management,” the New York State Department of Financial Services wrote in a report.

The report stated that one manager at Deutsche Bank on October 28, 2008 asked to be kept informed of the interest rates submitted by the bank to help calculate a benchmark rate.

On November 4 of that year, the Deutsche Bank manager received the following note from a trader following checks of Deutsche Bank’s Euribor rate submissions as compared to other banks.

The message said: “During September and the first week of October we submitted Euribor Rates about 5bp lower than the average which tended to be lowest contribution. However from October 9 onwards our submissions dropped a further 25bp below the Euribor average…”

It identified the manager who was told about the conspicuous interest rate submissions as the head of global rates and commodities at the time — that would have been Mr. Faissola at the time.

He currently sits on Deutsche’s Group Executive Committee that is one level below the management board.

Even though Mr. Faissola was aware of the abnormalities, the bank only started addressing the problem in 2011, investigators said.

Another former manager at Deutsche Bank is consistently portrayed as having been very well informed about the interest rate tricks. The head of global finance and foreign exchange forwards received the following message from a trader on March 20, 2007: “Have u seen the 3MK fixing today? That was an excellent concerted action FFT/LDN. Cheers.”

David Nicholls held that post in March 2007. He left the bank in 2012. He reported to Alan Cloete, who was in charge of trade in interest products and foreign exchange, and who in turn reported to Anshu Jain, who was in charge of investment banking at the time and is now the bank’s co-chief executive.

 

118 2014

 

In total, authorities concluded that 29 employees below the management board level were involved in the fixing. The bank has sacked 12 of them and launched disciplinary measures against others. The authorities have ordered it to fire another seven employees.

After it paid the Libor settlement, Deutsche Bank reiterated that no current or former management board member was involved in or aware of the failings.

It’s true that the reports of the U.S. authorities contain no indications that top management board members were involved in the rate fixing. In their final report, the U.S. regulators also didn’t demand any changes in the top management at Deutsche Bank.

But a 23-page report compiled by Benjamin Lawsky, New York’s top financial watchdog, and a more than 100-page appendix to the report by the U.S. Department of Justice criticize the bank’s management culture. They said profit maximization came before values such as market integrity and correct behavior.

Deutsche Bank declined to comment on the criticism of its managers.

There are already signs that the Munich trial, too, could become a much more protracted affair.

The accusations of a systematic cover-up are no less serious in the case that is facing Mr. Fitschen and his cohorts in Munich.

Deutsche Bank executives past and present, including Mr. Fitschen, appeared on trial in Munich for the second day Tuesday over the 2002 collapse of the Kirch media empire.

The weekly hearings are set to run until at least September. But there are already signs that this trial, too, could become a much more protracted affair.

The second day of the trial, which started last week, saw fierce exchanges between the prosecution and the defendants’ lawyers.

Mr. Fitschen’s attorney, Hanns Feigen, accused the prosecution of having withheld evidence that exonerated his client, a charge the prosecutor, Stephan Necknig, dismissed as “baseless.” The defense also filed a motion to have the top state prosecutor Christiane Serini dismissed for bias.

In turn, prosecutors claimed they had new evidence showing Deutsche Bank had tried to withhold information, a charge the bank’s lawyers also rejected.

Judge Peter Noll canceled the following court session to allow all parties to read a set of documents that the prosecution presented in the morning.

The defendants are accused of giving misleading evidence in connection with Kirch’s bankruptcy in 2002, which was followed by a civil suit brought by heirs of the late media mogul Leo Kirch accusing the bank of colluding to bring down the media conglomerate. The civil suit was settled for €925 million at the start of 2014, but Munich prosecutors subsequently filed criminal charges accusing the executives of lying in the civil trial.

Mr. Fitschen and his co-defendants, who include former chief executives Josef Ackermann and Rolf Breuer as well as former management board members Clemens Börsig and Tessen von Heydebreck, have all denied the charges.

 

Michael Brächer covers banks and financial institutions from Frankfurt, where Michael Maisch is deputy editor of the financial section. Katharina Slodczyk is Handelsblatt’s London correspondent and Kerstin Leitel is Handelsblatt’s financial correspondent in Munich. Christopher Cermak of the Handelsblatt Global Edition also contributed to this story. To contact the authors: [email protected], [email protected], [email protected] and [email protected]