Staff At Deutsche Bank Missold Derivatives On Purpose, According To A Probe

A recent internal review conducted on Deutsche Bank AG discovered that some employees were intentionally circumventing controls in order to make large profits by misrepresenting products to clients.

‍

There are people familiar with the matter who believe that employees on a foreign exchange desk in London were selling derivatives to small and medium-sized Spanish companies, despite the fact that they knew that these products were too complex for these clients, as revealed in Project Teal.

‍

The people, who asked not to be identified since they were discussing private information, said the business was exploited by internal staff taking advantage of deficiencies in Deutsche Bank's controls.

‍

Deutsche Bank's spokesman by email said the bank had reviewed parts of its structured FX derivatives sales activities and taken appropriate actions. Our processes and controls are being improved, as we expect and our regulators expect. As far as the specifics of these matters are concerned, we are unable to comment."

‍

After clients started complaining that derivative products sold to them as cheap hedging products caused significant holes in their bottom lines when exchange rates took an unexpected turn, Deutsche Bank has been assessing dozens of deals in Spain for over two years. Trade Algo has previously reported that the internal probe resulted in settlements worth tens of millions of euros with customers and caused several employees and executives to leave.

‍

Some other cases are also up for consideration by the German lender, including Palladium Hotel Group's claim for €500 million ($534 million). There has been a claim filed by Palladium companies in Spain alleging that it entered into hundreds of “highly complex” foreign-exchange transactions where it would have been impossible for Palladium to understand the risks, price them, or value them, resulting in real losses for the company.

‍

As a direct result of Project Teal, or "The Teal Project," the London desk of Deutsche Bank and some parts of the lender's Spanish operations have been sanctioned more than a dozen times, one person familiar with the allegations said. There have been a few who have left the company while others have been subject to disciplinary actions, including cuts to their bonuses, according to the person.

‍

A London-based law firm conducted an internal investigation into corruption allegations at the company, which also examined deals and controls beyond the London desk involved in the investigation, but did not find any evidence that the same type of misconduct occurred elsewhere, according to the source. Although the probe led to some changes in wide-ranging policies and procedures, the source said those changes were not the only ones.

‍

There have been other banks that have been accused of misselling derivatives in Spain, including Goldman Sachs Group Inc. and BNP Paribas SA, as well as a wine exporter by the name of J. The financial conduct authority of the UK filed a complaint against Goldman in 2021, alleging that Goldman had mismarketed derivatives under its name.

‍

Project Teal is nearly complete, according to a report from Trade Algo published earlier today.