Deutsche Bank is facing a massive €500 million lawsuit slapped by Spain’s seventh-largest hotel chain, Palladium Hotel Group, for the alleged misselling of complex and risky foreign exchange (forex) derivatives.
As reported by the Financial Times on Wednesday, the claim for the damages was filed in the High Court of London last month and is among many allegations the bank is facing for selling exotic financial products to small and mid-sized companies in Spain.
Loss Making Transactions
The hotel operator made 259 derivatives transactions facilitated by Deutsche Bank by 2019. The outstanding notional amount of the contracts at the peak of the transaction in 2017 touched €5.6 billion, the lawsuit detailed.
Deutsche Bank touted the forex derivatives contracts to be a safe hedge for forex fluctuations and changes in interest rates. However, the hotel chain ended up mounting losses and fees and had to cover them with ‘substantial loans’.
The German bank even restructured the loss-making derivatives investments for the hotel, charging more fees. But, that only resulted in greater losses.
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The deals between the bank and the hotel were fixed by the broker of Palladium’s Founder. Now, the hotel group is accusing the bank to have exploited personal relationships for financial gain.
The lawyers of Palladium said that the hotel group did not have enough expertise to know the risks of such complex financial derivatives.
According to the report, this could be a part of a scandal on the part of the German lender as it sold risky derivatives to 50 to 100 companies. Upon many allegations, the bank even entered into out-of-court settlements and even sacked two of its staff. Moreover, it initiated an internal probe into the allegations.
However, Deutsche said that the issue with Palladium is a standalone occurrence and is adamant on legitimacy on its part. Furthermore, the bank added that it will defend itself ‘vigorously,’ discarding any chances of settlement.