Rate Fixing Euribor trial adds to Deutsche Bank’s woes

A high-profile criminal trial features a current Deutsche Bank manager as well as four former Barclays employees. It's expected to run into the summer.

Deutsche Bank hasn’t had a good 2018 and it’s about to get worse: A criminal trial kicking off Monday in London alleges that a current Deutsche Bank managing director as well as four former Barclays bankers conspired to fix interest rates. The trial is bad press that Frankfurt’s biggest bank can do without, after unveiling its third straight annual loss that sped the replacement of CEO John Cryan.

The group allegedly conspired to rig the Euribor rate from 2005 to 2009 to the advantage of their institutions. Euribor is one of several interbank rates used as a reference. The best known is the dollar Libor rate, which was also subject to fraudulent manipulation by Deutsche and other banks. The German lender has already paid out some $4 billion in penalties and settlements for Libor manipulation in the US, the UK and the European Union. And the outcome of the criminal trial will influence nearly four dozen civil lawsuits against the bank for the Euribor manipulation.

Aside from the five defendants, who have not been named, a central figure is Christian Bittar, a high-profile Deutsche Bank trader considered a leader of the conspiracy. Mr. Bittar entered a surprise guilty plea last month and will not be a defendant in the trial starting Monday in Southwark Crown Court. Mr. Bittar’s change of heart might have been influenced by the automatic reduction in jail time that accompanies it.

Guilty: Christian Bittar.

Four other Deutsche employees scheduled for trial successfully challenged extradition from Germany due to the statute of limitations. However, the outstanding warrants make them subject to arrest if they travel outside their home country. A trader at Société Générale also resisted extradition from France.

Britain’s Serious Fraud Office has been tenacious in investigating the criminal activity. Former Citigroup and UBS trader Tom Hayes was sentenced to 14 years in prison in 2015, though it was later reduced to 11 years. Four Barclays traders were sentenced to prison for terms up to six and a half years in 2016.

The widespread fraud in the interbank rates has prompted a search for alternatives. The New York Federal Reserve Bank, which implements monetary policy for the US central bank, began this week to publish the Secured Overnight Financing Rate (SOFR). This rate, based on transactions in the repo market, mimics Libor as an overnight rate with the difference that it is based on observable trades rather than estimates by participants. The European Central Bank and a London working group are also looking at data-based rates to replace Libor and other interbank rates as reference points.

Carsten Volkery is a Handelsblatt correspondent in London. Darrell Delamaide adapted this article into English for Handelsblatt Global. To contact the author: [email protected].