Deutsche Bank, UBS profits battered by rising legal costs

Forex Probe

Deutsche Bank is trying to put litigation behind it, Chief Financial Officer Stefan Krause said on a conference call with analysts. The company is interviewing about 50 employees as it investigates whether traders tried to rig rates, a person familiar with the matter said last week. Deutsche Bank has also said that its own internal probe into Libor indicates no wrongdoing by current or former management board members.

Investigators are also probing the possible manipulation of the $5.3 trillion-a-day foreign-exchange market. Bloomberg News reported in June that traders at some banks said they shared information about their positions through instant messages, executed their own trades before client orders and sought to manipulate the benchmark WM/Reuters rates, which determine what many pension funds and money managers pay for their foreign exchange.

Deutsche Bank said said it was co-operating with requests for information from regulators. The lender is biggest foreign exchange trader, accounting for 15% of the market, according to a May survey by Euromoney Institutional Investor Plc. UBS has about 10% of the market.

Mortgage Sales

Germany’s largest lender also said it’s cooperating with regulators probing repurchase transactions it arranged for Banca Monte dei Paschi di Siena SpA, Italy’s third-largest bank. Deutsche Bank is contesting allegations of fraud and negligence. Italian prosecutors are also probing other unrelated transactions, it said.

Deutsche Bank also faces probes and lawsuits related to its origination and sale of mortgage-backed securities. The lawsuits allege the bank misrepresented the products. It has said that it is cooperating with regulators.

JPMorgan Chase & Co. agreed last week to pay $5.1 billion to settle a U.S. regulator’s claims related to home loans and securities the firm sold to mortgage finance companies Fannie Mae and Freddie Mac, resolving part of a $13 billion accord the firm is negotiating with the government. The bank reported its first quarterly loss under CEO Jamie Dimon, 57, earlier this month after taking a $7.2 billion charge to cover the cost of mounting litigation and regulatory probes.

Target Postponed

Deutsche Bank, UBS, Lloyds, BNP Paribas SA, HSBC Holdings Plc, Royal Bank of Scotland Group Plc, Barclays Plc, Societe Generale SA, Credit Agricole SA and Julius Baer Group Ltd. face about $39 billion in future litigation costs to settle various claims and regulatory probes, Credit Suisse Group AG analysts led by Amit Goel estimated in a February report.

UBS, Switzerland’s biggest bank, said its target to reach a 15% return on equity in 2015 will be delayed by at least a year unless the Swiss regulator lifts an order that UBS hold more capital.

“There is no single item that we can point to that brought this decision,” CEO Sergio Ermotti, 53, said in an interview with Bloomberg Television, referring to the order to increase capital for operational risks. “It’s a variety of reasons and it’s a temporary measure. We will work hard to take this add-on away.”

UBS reported third-quarter net income of 577 million Swiss francs ($644 million) compared with the 561 million-franc average estimate of 12 analysts surveyed by Bloomberg. A 222 million-franc tax benefit helped cushion 586 million francs in provisions for litigation and regulatory matters.

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