Deutsche Bank disputes regulator's Libor report allegations

[July 17, 2015]   FRANKFURT (Reuters) - Deutsche Bank has disputed allegations by Germany's financial watchdog, sources close to the lender said, in its official response to a preliminary report into interest rate manipulation which threatens sanctions against the bank and individuals.

The watchdog, Bafin, issued scathing criticisms of several executives at Deutsche Bank in a report, sent to the lender in May, on attempts to manipulate interbank interest rates such as Libor, according to a copy of the report published by the Wall Street Journal on Friday.

Managers at Germany's largest bank failed to ask tough questions or establish basic controls to prevent traders from attempting to manipulate interest rate benchmarks that determine prices for trillions of dollars in assets like home loans and credit cards, the report alleged. A copy of the report was posted online by the newspaper.

The report also alleges "major misconduct" by traders and "major failures" by members of the management board or the group executive committee, and refers to "substantial organizational defects", which continued in some cases until the beginning of 2014 – long after supervisors had sounded the alarm on market manipulation.

Deutsche Bank's full response was sent to Bafin in early July but has not been released publicly. Sources close to the bank said it rejected many of the allegations made in the regulator's report.

And in an emailed response to Reuters on Friday, Deutsche Bank said of the Bafin document:

"The report includes statements that are taken out of context. It would be unwarranted to infer conclusions about the conduct of the bank or any individuals at this stage."

Deutsche Bank has been hit by over 9 billion euros ($9.8 billion) in fines and settlements in the past three years, including a record $2.5 billion settlement with U.S. authorities for Libor.

The report's author threatens Deutsche Bank with further sanctions. "I will also conclusively examine imposing banking supervisory measures in this context which I consider to be necessary," the report said.

Bafin has the power to impose only moderate fines but can order the dismissal of executives.

The bank removed its co-Chief Executives Anshu Jain and Juergen Fitschen and installed a new CEO, John Cryan, on July 1, only weeks after the report was issued on May 11.

The tone of the regulator's comments and the threat of further sanctions underscore Cryan's challenge as he seeks to lead a sweeping strategic overhaul to slash costs, shrink the investment bank and jettison the group's separately branded retail wing Postbank.

($1 = 0.9187 euros)

(Reporting by Thomas Atkins and Kathrin Jones; Editing by Susan Fenton)

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