Deutsche Bank fined $16m over US corruption charges

Deutsche Bank, the world’s second largest interbank FX dealer by market share, has been fined $16 million as a result of the US authorities having leveled charges against the company stating that it hired relatives of overseas officials in order to gain new business.

Neopotism such as this is illegal in the United States among large publicly reporting organizations and financial institutions, and is considered corruption.

The Securities and Exchange Commission (SEC) stated that it had fined the bank for hiring poorly qualified people just to get close to their decision-making relatives. Under the settlement’s terms Deutsche did not admit any wrongdoing over the charges.

“Deutsche Bank provided substantial cooperation to the SEC in its inquiry and has implemented numerous remedial measures to improve the bank’s hiring practices,” a spokesperson told Reuters last night.

The regulator has accused Deutsche of employing these members of staff between 2006 and 2014 with the “primary goal” of getting business from their relatives at state-owned businesses. The work included initial public offerings.

It also accused Deutsche of keeping false books and records to cover up its disingenuous hiring.

Whilst the SEC’s report did not stipulate within which divisions of the bank these individuals were employed, Deutsche Bank has managed to regain some of the market share it lost over recent years within the FX interbank sector, jumping from seventh position in 2017 to second position today behind non-bank market maker XTX Markets.

If the SEC’s assertion that poorly qualified people were hired but had decision making connections, this could be a factor considering that liquidity distribution between banks and their institutional partners is very much a relationship business.

For quite some time now, Germany’s investment banking, interbank FX trading and exchange traded derivatives moguls have wanted to obtain a stranglehold over the European markets, and in particular create large scale mergers in order to outstrip the rivals on the grounds of size and market presence.

Deutsche Bank, whose FX dealing market share has slipped from fifth to seventh globally in 2018, still holding its position within the top ten interbank FX dealers worldwide, is a prominent force in the market making structure of the global FX industry, however that particular division is headquartered in London, and not Frankfurt.

In an attempt to eclipse Canary Wharf, Deutsche Bank and Commerzbank, another of Germany’s largest financial institutions which also has a well recognized investment banking and interbank trading division, have been working on a merger which would have placed the newly formed entity in a strong position to dominate the European clearing and execution market, even if the actual trades themselves were to take place in London.

The two European giants began talks last month after the German government, which owns a 15% in Deutsche Bank, signalled it would not object to any necessary cost cuts or job losses. The German government has pushed for the merger in an attempt to create a national banking champion after becoming concerned over the health of both banks.

The merged bank would have become the Eurozone’s second largest lender behind BNP Paribas, with around €1.9 trillion (£1.6 trillion) in assets and a market value of €25 billion, BNP Paribas being a relatively commonly favored TIer 1 prime brokerage among UK institutional FX trading firms.

As is often the case in mainland Europe, it was the trade unions that reared their recalcitrant heads this time, thwarting the merger which is now completely off the table.

Socialism reigns supreme in Europe, which is one of the reasons for the lack of modernity, lack of business infrastructure and inability to compete with Anglosphere regions on many levels.

Government ownership, unionized workforces and huge taxes on company revenues and financial transactions, along with a public misunderstanding of the financial sector and the technology that underpins it are some of the factors that have hampered progress in mainland Europe whilst Australia, the UK, North America and the Asia Pacific region have centralized the most efficient and highly advanced electronic financial ecosystem that powers the world’s economies.

In tandem with these factors, many mainland European domestic economies teeter on the brink of obscurity and require continual bail outs only to find that their lack of productivity and modernity along with the sense of entitlement that the IMF has created for them results in repeats of the same money printing exercises, thus not inspiring investment from innovators or banks.

This type of QUANGO orientated methodology is commonplace in Europe, but does not belong in London or New York, where quite the opposite is expected of large firms.