Cartel Power: Megabanks Gain Ground Despite Fines, Part 1

Published on Spiegel Online International, by Sven Böll, Martin Hesse, Christoph Pauly and Anne Seith, Dec 10, 2013 (Photo Gallery).

Authorities around the world are taking action against large banks for questionable practices including collusion and rate manipulation, but the power of these financial institutions continues to grow. Germany’s Deutsche Bank in particular finds itself under fire.  

German Finance Minister Wolfgang Schäuble recently gave a German banker the most brutal lesson to date — delivered in a series of apparently incidental comments. At a press conference last Thursday afternoon, Schäuble launched into one of his notorious lectures on sound fiscal policy in times of crisis.

But then, finally, he had an opportunity to air his frustration over the incorrigible banker caste. A journalist asked Schäuble about his response to recent comments by Deutsche Bank co-CEO Jürgen Fitschen. The previous day, Fitschen had accused Schäuble of irresponsibility and populism, because the finance minister had insinuated that the banks were still bypassing financial industry regulations.

“I don’t know if Herr Fitschen has understood what I mean,” Schäuble complacently replied. He also noted that he had only recently reminded the bank executive that the financial crisis had not been caused by politicians. Then, as if he hadn’t already sufficiently lambasted one of the country’s leading bankers, Schäuble added: “If Herr Fitschen carefully reviews his statement, he will undoubtedly come to the conclusion that he is incorrect in this matter.” And Fitschen has undeniably adopted the wrong tone, he said.

The head of the venerable Deutsche Bank reprimanded like a schoolboy? Ouch.

Schäuble’s slap in the face is a warning to Deutsche Bank. The minister’s portfolio includes Germany’s Federal Financial Supervisory Authority (BaFin). These days, the Bonn-based financial watchdog is conducting far more than the usual number of investigations into Germany’s largest bank, and the consequences of these probes — for the bank and its co-CEOs Fitschen and Anshu Jain — are ultimately a political issue … //

… Taking An Aggressive Approach to Banks: … //

… Massive Fines Imposed: … //

… Colluding With the Competition:

  • And the larger the sums involved, the more profitable it is to influence the currency rate, even if it only affects the third decimal place. Every day at 4 p.m., at the London afternoon fixing, exchange rates are established for important pairs of currencies, like the euro/dollar. Countless financial holdings of companies and investors worldwide are tied to this figure.
  • The fixing is calculated based on the currency transactions that are conducted during the minutes around the 4 p.m. deadline. Because the trading orders for this are primarily handled by the big investment banks, they can sense in what direction the exchange rate is moving just before the fixing. It’s possible that they capitalize on this information for their own business transactions and collude with their competitors — at least that’s what investigators in New York, London and Frankfurt suspect.
  • This prompted the FBI to visit the New York offices of Deutsche Bank currency trader Robert Wallden a few weeks ago. The agents waved a log of an online chat under Wallden’s nose. Investigators say this proves that Wallden bragged about how he had manipulated currency exchange rates. Deutsche Bank has declined to comment on the probe, but fellow colleagues say that he was joking.
  • An insider from the bank says: “You shouldn’t take at face value what’s said there because everybody knows by now that the chats are recorded.” Anybody wanting to manipulate exchange rates would use other approaches, he contends.
  • Nevertheless, Deutsche Bank has banned its traders from taking part in online chats at work. But this does not change the dramatic consequences that can result from their traders’ behavior. Since early last summer, British investigators have been scrutinizing the currency trading business for signs of manipulation, and they are targeting a dozen banks.

Libor Making BaFin Suspicious:

  • Germany’s BaFin has also been conducting its own investigation into the matter since last summer, but the agency says that there are still no indications that Deutsche Bank was involved. For the time being, BaFin has merely made a request for information. This means that the bank has launched an internal review, and BaFin will only intervene if it is dissatisfied with the information that Deutsche Bank’s lawyers provide.
  • The Libor case must have made BaFin rather suspicious. After conducting an internal investigation, the chairman of Deutsche Bank’s supervisory board, Paul Achleitner, absolved the entire board of directors — including Anshu Jain — of any wrongdoing back in the summer of 2012.
  • To this day, BaFin doubts that Jain and other top executives can simply wash their hands of the matter. The agency is pursuing a criminal investigation to find out who — right up to the board of directors — knew about the manipulations. Consequently, it is still possible that the Libor scandal could topple Jain. The currency exchange rate rigging scandal could also prove to be his undoing if the suspicions of investigators are confirmed.
  • If it turns out that the exchange rates were manipulated, it is hardly conceivable that Deutsche Bank was not involved, at least according to numerous sources in the banking sector. Why is that? Because the bank — with a 15 percent share of the global foreign-exchange market — has almost continuously been the leader in this business for the past 13 years.
  • It was exactly 13 years ago that Jain assumed responsibility for trading in commodities and currencies, and later in interest-rate products as well. Within just a few years, he made these departments into the leading sources of income for Deutsche Bank.

(full text).

Part 2: An Institutionalized Conflict of Interest.


Dodd-Frank Wall Street Reform and Consumer Protection Act, on en.wikipedia: … commonly referred to as Dodd-Frank) was signed into federal law by President Barack Obama on July 21, 2010 at the Ronald Reagan Building in Washington, DC.[1] Passed as a response to the late-2000s recession / (Great Recession), it brought the most significant changes to financial regulation in the United States since the regulatory reform that followed the Great Depression.[2][3][4] It made changes in the American financial regulatory environment that affect all federal financial regulatory agencies and almost every part of the nation’s financial services industry[5][6] …;

Spiegel Online International’s Banking and Finance Page: related articles, background features and opinions about this topic;

Opinion: Tough on Russia, Easy on America, on Spiegel Online International, by Jakob Augstein, Dec 9, 2013;
Photo Gallery: Uprising in Kiev, Dec 9. 2013.

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