Deutsche Bank Gearing Up for Settlement with US Regulators Over FX Conduct

A fine from the Federal Reserve and NY's Department of Financial Services could be imminent.

Just one day after dodging a fine from the US Department of Justice (DoJ) with regard to its foreign exchange (FX) activities, Deutsche Bank has now indicated that it expects to be docked with a monetary penalty from both the Federal Reserve and New York’s Department of Financial Services (DFS), according to a Bloomberg report.

The unwelcome news follows on the heels of yesterday’s announcement that a criminal investigation by the DoJ into the handling of Deutsche Bank’s FX activities was closed, resulting in no fine or discipline for the lender. The development came nearly three years after an industry-wide scandal into FX rate rigging and manipulation roiled global lenders.

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Since then a composite of leading lenders have been fined upwards of $5.6 billion with both US and UK regulatory authorities – settlements reconciled a litany of allegations into illicit behavior dating back several years.

Writing on the Wall

Regardless of the DoJ announcement, and even the cessation of a US Commodity Futures Trading Commission investigation last October, Deutsche Bank’s regulatory plights have still continued to bog down the lender, as indicated by its upcoming verdict from the DFS and Federal Reserve.

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However, the Federal Reserve and DFS are expected to be concluding their investigations shortly, bringing to light their own reviews of Deutsche Bank’s conduct with regard to its FX market practices. It is still unknown what level of fines or settlements, if any, will be levied, though Deutsche Bank is certainty expecting some level of monetary penalty.

The DFS’ probe has its origins in 2014, when it first launched a currency investigation into both Deutsche Bank and Barclays Plc – at the time its paramount focus was on the groups’ conduct with respect to their electronic trading platforms. The investigation eventually swelled to include a list of firms – Goldman Sachs, BNP Paribas, Credit Suisse Group and Societe Generale.

The news is an unwelcome development that pares any sort of optimism radiating out of the bank from yesterday. Deutsche Bank was already looking to move past a turbulent Q1 2017 that has been mired by persistent job cuts, fines, and a dramatic restructuring of its core business. The lender has also slashed its bonuses over the past couple months, as shareholders have grown increasingly impatient.

Talking fines, it is impossible to determine what a potential settlement would look like, however the lender can ill afford another massive fine. Back in late December, the group felt it prudent to reiterate its capital strength following a landmark settlement with US regulators, which saw Deutsche Bank agree to a $7.2 billion deal to resolve a probe into the alleged mis-selling of mortgage-backed securities.

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