Last week, Eric Ben-Artzi, a former risk analyst, accused the bank’s managers of hiding billions of dollars in paper losses on a portfolio of collateralized insurance agreements between 2007 and 2010. Deutsche Bank denied the allegation, saying its probe of the matter showed no wrongdoing. The U.S. Securities and Exchange Commission declined to comment on the investigation.
The world’s largest banks have become the subject of probes from Japan to Canada as regulators intensify scrutiny of the industry. This week, HSBC Holdings Plc, the U.K.’s biggest bank, agreed to pay $1.92 billion to settle U.S. probes of money laundering in the largest such deal on record. Standard Chartered Plc agreed Dec. 10 to pay $327 million of fines after regulators alleged it violated U.S. sanctions with Iran.
“There are quite a lot of banks around Europe and the world with a hangover from legacy issues from what happened in the crisis,” said Simon Adamson, a debt analyst with CreditSights Ltd. in London. “The fallout from the crisis will be an ongoing risk for investors. It’s going to be difficult for a while to know what the consequences are going to be for banks like Deutsche Bank.”
Tax inspectors carrying computer equipment and files entered elevators at Deutsche Bank’s headquarters in central Frankfurt on Dec. 12 after a swoop by hundreds of police.
The five arrested employees appeared in a city court yesterday, accused of obstruction of justice and money laundering in a probe of unpaid sales taxes on the CO2 certificates. Four remain behind bars and 20 more are under investigation. Deutsche Bank says it took account of a potential fine by not claiming back about 310 million euros ($410 million) in tax refunds.
“The pressure is building on them,” said Christopher Wheeler, an analyst with London-based Mediobanca SpA who recommends clients sell Deutsche Bank shares. “All bank management is doing is saying ‘this is terrible, but don’t worry, it’ll blow over.’ It has in the past but they’re facing a lot of things that haven’t gone away.”
One of the individuals arrested is responsible for Deutsche Bank’s litigation department, according to two people familiar with the matter. The central allegation against the employees is that they deleted e-mails central to the probe, said one of the people, who requested to remain anonymous as the matter is private.
Deutsche Bank declined to comment on the individuals.
Raids were also conducted in Berlin and Dusseldorf, with about 500 police and tax investigators involved, Guenter Wittig, a spokesman for the Frankfurt General Prosecutor, said in a statement. The authorities also entered private homes.
Prosecutors say Deutsche Bank failed to correct its 2009 tax statement quickly enough, according to the bank. The company holds that any errors in the document regarding tax on CO2, which Fitschen and Krause signed, were amended in a timely manner. It “continues to fully cooperate with the authorities,” according to a Dec. 12 statement from the lender.
Deutsche Bank estimates potential litigation losses for which it hasn’t set aside provisions to be 2.5 billion euros at the end of September, according on its third-quarter earnings report. The bank doesn’t break down that figure.