LIBOR Scandal Off the Hook

Deutsche Bank, and in particular co-CEO Anshu Jain, had been under investigation for involvement in the manipulation scandal. Germany's bank regulatory board BaFin is to exonerate Mr. Jain, Handelsblatt has learned.
Mr. Jain, exonerated and strengthened.

Anshu Jain, the co-chief executive of Deutsche Bank, is to be exonerated by German bank regulators investigating the LIBOR rate-fixing scandal, according to information obtained by Handelsblatt.

The exoneration would clear the head of Germany's largest bank of wrongdoing in a case that has engulfed dozens of financial institutions worldwide. The case had questioned the reputation of Mr. Jain as a man who can clean up Deutsche Bank's corporate culture and steer it through a myriad of legal challenges still facing the bank.

Investigators with Germany's Federal Financial Supervisory Authority, or BaFin, had searched the headquarters of Deutsche Bank in Frankfurt in July 2012 after voicing doubts about the bank's own investigation. They questioned whether the financial institution would make a serious effort to investigate its own involvement in one of the biggest scandals in financial history: the manipulation of the LIBOR benchmark rate, which influences financial products worth trillions of dollars worldwide.

At the time, Paul Achleitner, head of Deutsche Bank’s supervisory board, had insisted that “none of the current or former board members,” were involved in the LIBOR scandal, after the bank conducted its own investigation, which included trawling through millions of e-mails. Yet that was not enough for the BaFin regulators.

Anshu Jain, in particular, who has been running Deutsche Bank together with Jürgen Fitschen since June 2012, came under pressure. From his office in London, he had previously managed the investment banking division – which was precisely the area where the LIBOR manipulations had allegedly taken place.

Mr. Jain can breathe easily again, because the final report by BaFin, Germany Federal Financial Supervisory Authority, is to exonerate him.

 

Deutsche Bank-Results-Litigation-Costs-Oct-29-2014

 

According to sources within the finance industry, BaFin has concluded that there was no evidence of senior executives being involved in or aware of the interest rate manipulations. According to the report, BaFin will not take any "serious measures," such as removing Mr. Jain from his position. "Nothing incriminating was added, and BaFin is not coming around the corner with a red card," said an insider. Spokesmen for BaFin and Deutsche Bank declined to comment.

Dozens of banks and brokerages came under the spotlight of regulators after it emerged that some financial institutions had been abusing benchmark interest rates such as EURIBOR and LIBOR.

Things had not looked good for Deutsche Bank or Mr. Jain back in August 2013 when an interim report by BaFin had criticized the bank for its corporate culture. The report said it was not clear "whether senior management was involved in or had knowledge of possible manipulation attempts," and pointed to "grave organizational shortcomings" at the bank.

BaFin is not coming around the corner with a red card.

The report was particularly critical of Mr. Jain.  The bank’s supervisory board interpreted it as a “caution” to Mr. Jain, a step which could precede an official warning and even his removal from his post.

BaFin probably will not release its report until early 2015, rather than this month, as originally planned. But it is already clear today that Mr. Jain is now in a stronger position at the bank.

Some saw Mr. Jain's initial appointment to lead Deutsche Bank as a risky choice, given the many scandals in the investment banking division he had been leading. But now he is no longer under any threat of serious sanctions.

Co-CEO Jürgen Fitschen, on the other hand, was originally a safer choice, chosen as Mr. Jain's partner at the helm of the bank because of his strong reputation as a champion of German small and mid-sized companies.

However, it is Mr. Fitschen that could now face trial in a Munich district court in 2015 for aggravated attempted fraud. Prosecutors have already filed an indictment against Mr. Fitschen. He stands accused of failing to correct false statements made by fellow executives in a civil lawsuit related to the collapse of Germany's Kirch media empire back in 2002.

Now there is an imbalance within the dual leadership: While Mr. Jain is set to be exonerated, Mr. Fitschen is still in the hot seat.

Mr. Fitschen’s contract runs out in 2017. The question that is likely to arise before that is whether Mr. Jain is ready to take on the role by himself or whether he will continue with a partner – but possibly a new one.

 

WTB 2013

 

 

Peter Köhler heads Handelsblatt’s banking coverage, Laura de la Motte is an editor on Handelsblatt’s finance desk and specializes on the banking sector. Robert Landgraf and Michael Maisch are currently in charge of Handelsblatt's finance section. To contact the authors: [email protected], [email protected], [email protected], [email protected].