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Deutsche may not face German penalty over Russian trades - sources

Published 06/10/2016, 12:28
Updated 06/10/2016, 12:30
© Reuters. A fountain is seen next to the headquarters of Germany's Deutsche Bank in Frankfurt
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By Arno Schuetze and Kathrin Jones

FRANKFURT (Reuters) - Germany's financial watchdog has found no evidence to date that Deutsche Bank (DE:DBKGn) violated money laundering rules in Russia, people close to matter said on Thursday, possibly relieving one headache for the country's biggest bank.

The Russian case is just one of many regulatory investigations that have combined to push Deutsche Bank into the most damaging crisis in the 146-year old bank's recent history.

Last month, a U.S. Department of Justice (DOJ) demand for up to $14 billion to settle claims that Deutsche Bank mis-sold U.S. mortgage-backed securities before the financial crisis sent the bank's shares to their lowest ever levels.

Even if Bafin, which oversees Deutsche Bank in its home market, does give the bank the all-clear over its Russian business, regulators in Russia, Europe and the United States are also investigating it over so-called "mirror trades".

These may have allowed clients to move money from one country to another in 2014 without alerting authorities, potentially enabling them to breach Western sanctions on Russia over the Ukraine conflict.

German regulator Bafin is nearing the end of its investigations and may impose no demands other than requiring Deutsche Bank to improve its risk management, the sources said, confirming a Sueddeutsche Zeitung report. Deutsche Bank, whose shares were 1.2 percent higher at 0930 GMT, declined to comment.

Bafin, which also declined to comment on its investigation, focused on whether Deutsche Bank's systems were up to speed in identifying dubious trades being carried out on its platforms.

LEGAL BILL LOOMS

The UK's Financial Conduct Authority as well as the DOJ and the Department of Financial Services have each launched investigations into whether any European or U.S. sanctions against Russian individuals were violated.

Although the view of these authorities is not yet known, investors fear that Deutsche Bank may have to put aside more money to cover its legal bills.

Earlier this year the bank raised its provisions for a potential settlement in the Russia case, which has prompted the it to partially pull back from the country.

"We reckon that the bank's 5.5 billion euros in provisions may be insufficient to cover all ongoing litigation cases," Scope Ratings said in note on Thursday.

Investors have been focused on the potential damage from the U.S. mis-selling case in recent weeks, although German companies have rallied behind the lender, which plays a key role in financing their international operations and domestic needs.

Berlin is pursuing discreet talks with U.S. authorities to help Deutsche Bank secure a swift settlement and put the bank back on a firmer footing, sources told Reuters.

Germany's influential industry association BDI said that as an export-oriented economy Germany needs strong internationally competitive lenders, while Union Investment, one of its major investors, also backed the bank on Wednesday, saying that the sell-off in its shares was overdone.

© Reuters. A fountain is seen next to the headquarters of Germany's Deutsche Bank in Frankfurt

"To us, Deutsche Bank is not a bank in crisis," Frank Engels, head of fixed income at Union, said.

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