Deutsche Bank Resigns From London Gold Fix As Investigations Heat Up

January 17th, 2014 by

moneyman

Deutshe Bank announced today that it is resigning from the LBMA “gold fix” panel and also withdrawing from the “silver fix” panel, as European regulators demand records from the bank regarding price manipulation of currency and precious metals markets.

The bank, Germany’s largest, suspended several forex traders in its New York offices on Wednesday, as investigators examine whether it manipulated currency exchange rates as well as precious metals exchange rates for its own profit, and to the detriment of its clients. The Forex market is a $5.3 TRILLION a day market, so rate rigging is a very serious offense. Only four banks control more than half the currency exchange market, with Deutsche being the largest. The others are Citigroup, Barclays, and UBS.

Reuters reports that:

Deutsche has also been named in cases related to the sub-prime crisis, credit default swaps, mortgages, tax evasion and a decade-old lawsuit suit brought by the heirs of late media mogul Leo Kirch, who accuse the bank of undermining the business.

The bank set aside 1.2 billion euros for potential legal charges in the third quarter, wiping out profit and raising the total amount of legal reserves to 4.1 billion euros.

Deutsche Bank is looking to sell its seats on the London gold and silver price fixing board to another bank, but it may find a little difficulty in doing so. Several other Too Big To Fail banks are also under investigation. U.S. investigators raided Citigroup’s London offices in an ongoing probe into currency manipulation.

Deutsche Bank is one of five banks that set “official” gold prices twice a day by teleconference, and silver prices once a day. These “fixes” influence billions of dollars of investments every day. Only three banks set the silver price, Deutsche being one of the three.

Bloomberg reports that Deutsche Bank said last month it will exit dedicated energy, agriculture, dry bulk and base metals trading and transfer its financial derivatives and precious metals desks to the fixed income and currencies division. The decision to cut jobs will have “no material impact” on earnings, it said.

They are not the only bank to start exiting commodities while under regulatory scrutiny. Even as watered-down as it is, the Volcker Rule is helping regulators combat commodities manipulation by restricting what commodities a bank  can own. One of the more public recent accusations is anti-trust lawsuits against JP Morgan and Goldman Sachs for manipulating aluminum, and creating fake bottlenecks in warehouses that they own, in order to restrict supply and raise prices.  JP Morgan paid a  $410 million fine to end criminal investigations of running an Enron-like scheme to manipulate power prices in California and the Midwest from 2010 to 2012.

While other banks have started moving out of commodities due to investigations and new regulations, they plan to remain in the precious metals markets.  Bank of America announced that it is selling its power and natural gas holdings in Europe (possibly because EU regulators have been more energetic in their investigations.)  Goldman Sachs, however, has vowed to hold on to its commodities business. Goldman benefits from a special law passed after the 2008 financial crisis that allows it to own commodities that other banks cannot.

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