LONDON – Deutsche Bank warned investors on Thursday that continuing investigations by financial regulators into potential manipulation of the $5-trillion-a-day currency markets could have a “material” financial effect on the bank.
Investigations begun last year by regulators in Germany, Britain, the United States and elsewhere have not resulted in any criminal charges, but more than two dozen traders have been suspended or terminated as a result of internal inquires at some of the world’s largest banks.
Deutsche Bank, one of the largest players in the foreign exchange market, and Citigroup each have fired employees as a result of their own investigations.
“The extent of Deutsche Bank’s financial exposure to these matters could be material, and Deutsche Bank’s reputation may suffer material harm as a result,” the bank said on Thursday.
The Foreign Currency Fix
Regulators say that a group of London traders, known as the “cartel” and the “mafia,” illegally dipped into the $5.3-trillion-a-day currency trade.
By Channon Hodge, Aaron Byrd and David Gillen on Publish Date March 11, 2014. Photo by Aaron Byrd/The New York Times.The disclosure was part of a cavalcade of potential risks outlined by Deutsche Bank, Germany’s largest lender, in a prospectus related to its efforts to raise $11.5 billion in new capital. The potential risks include changes in European and United States laws and adverse market conditions in the future.
In addition to the currency inquiry, the bank is facing a variety of regulatory investigations, including inquiries related to the potential manipulation of global benchmark interest rates and whether its past processing of payments in dollars for countries facing United States sanctions complied with federal and state laws.
The French bank BNP Paribas is facing a potential fine of $8 billion and a guilty plea by its parent company as part of an investigation into its possible dealings with countries that have been blacklisted by the United States, according to people briefed on the matter.
“The increasingly stringent regulatory environment to which Deutsche Bank is subject, coupled with substantial outflows in connection with litigation and enforcement matters, may make it difficult for Deutsche Bank to maintain its capital ratios at levels above those required by regulators or expected in the market,” Deutsche Bank said on Thursday.
The bank has said that the regulatory inquiries, including the foreign exchange investigation, “have the potential to result in the imposition of significant financial penalties and other consequences for the bank.”
In May, the Federal Financial Supervisory Authority of Germany said that it had found evidence that traders tried to manipulate multiple currencies but did not identify any banks or individuals. The regulator has brought no charges in the matter.
Deutsche Bank and other banks are facing pressure from regulators to reduce their involvement in riskier businesses and to have more capital on hand to weather potential financial storms in the future.
As part of its capital-raising, Deutsche Bank said in May that it had sold new shares worth 1.75 billion euros, or about $2.4 billion, to Paramount Holdings Services, an investment vehicle owned by Sheikh Hamad bin Jassim bin Jabr Al-Thani of Qatar.
Deutsche Bank plans to raise an additional €6.75 billion through a rights offering expected to conclude on June 24. On Thursday, the bank said the subscription price for new shares issued as part of the offering was €22.50 a share. The offering is expected to dilute the value of shares now held by its investors.
Shares of Deutsche Bank declined about 3.4 percent, to €28.77, in Frankfurt on Thursday. Its shares were down 3.7 percent, to $39.02, in trading in New York about midday Thursday.