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Deutsche Bank Settles Gold Manipulation

December 6th, 2016 by

deutsche-bank-crisis

The massive German lender Deutsche Bank (DB) has been struggling mightily this year, watching its stock price crater roughly 30% year-to-date. (In fact, DB has lost more than 50% of its value in the past five years.) The company has been plagued by one round of bad news after another in 2016, drawing negative attention for its plunging stock valuation and its dwindling market share. Although it remains the largest lender in Germany, many investors are losing faith in Deutsche Bank.

Now, the bank is finally settling a case with antitrust regulators in the U.S. in connection to manipulating the price of gold.

Coming Clean . . . Not Really

The bank was sued by a private group of traders and investors along with several other megabanks: Barclays, the Bank of Nova Scotia, HSBC, and Société Générale. So far, Deutsche Bank is the only defendant to have settled. However, Scotiabank is still turning over internal communications in accordance with a ruling by the U.S. District Court in New York in regard to the bank’s role in gold price manipulation.

Not long ago, DB was already forced to pay $38 million to settle a case regarding manipulation of the silver price. This means Deutsche Bank has been implicated in using the price fix for both precious metals to its advantage. However, as part of the terms of the settlement, the bank has admitted to no wrongdoing.

gold manipulation

The most pressing issue in this case is whether or not the price-fixing mechanisms for gold and silver are actually providing an accurate means of price discovery for precious metals. Although the deck of players has been reshuffled and administrators have changed hats at the respective daily fixes, the whole scandal throws into question the accuracy and usefulness of the price-setting method.

At any rate, Deutsche Bank agreed to pay $60 million to resolve the case. The plaintiffs are traders and other professionals in the industry who were adversely affected by the collusion to influence the price fix one direction or the other.

Layoffs Coming

The settlement gets one more problem out of the way for Deutsche Bank—for now. It’s far from the company’s only cause for concern, unfortunately.

The bank must still deal with the looming problem of steep multi-billion-dollar fines from regulators in the U.S. and the U.K. These charges are considered more serious than tinkering with gold and silver prices. The offenses relate to unethical banking practices employed before and during the financial crisis in 2008.

DB has also announced that it will cut over 3,000 clients as part of a larger restructuring plan that began last year. The reduction in business will effect “actively-trading” clients, which are primarily hedge funds. Overall, as much as half of the bank’s investment banking division will be pared.

Despite the relative lack of good news (and influx of bad news), DB has joined the “Trump rally” in the finance sector of late. The share price rose almost 4% on Tuesday and is up 20% over the past three months. Still, it’s worth reiterating that DB stock is down over 30% year-to-date.

 

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