Back in April, Deutsche Bank agreed to pay [5] $2.5 billion (or around $25,475 per employee) to the DoJ, the CFTC, the NY Department for Financial Services, and the UK’s FCA in connection with the bank’s role in the global conspiracy to rig LIBOR (and EURIBOR, and TIBOR, but who’s counting). The fine marked the largest LIBOR-related settlement thus far but as usual, regulators stopped short of insisting that the actual human beings responsible for the manipulation of a benchmark upon which trillions in financial assets are based be put behind bars. In other words, no people were held accountable.
That said, we got a faint glimmer of hope on the accountability front when, late last month, FT reported that the German financial watchdog BaFin was looking into whether (former) co-CEO Anshu Jain lied to the Bundesbank about when he first learned that his traders and submitters might have been involved in fixing the LIBOR fixes.
A few weeks later, the full BaFin letter sent to Deutsche Bank was released by WSJ and sure enough, the regulator says very plainly [6] that Jain has "been proven to have learned about discussion in the market concerning the susceptibility of the LIBOR to manipulation in 2008," despite having told the Bundesbank that he had no such knowledge until at least three years later.
The report also details Jain’s cozy relationship with rate rigger extraordinaire Christian Bittar as well as outlining how it was indeed Anshu Jain who personally oversaw a seating assignment change in 2005 that deliberately placed traders next to submitters in order to facilitate communication between the two. Unsurprisingly, BaFin promptly decided that it was just kidding and that the very thing it was absolutely sure of in May was actually "unsubstantiated [7]" - Jain was subsequently cleared of any malfeasance.
On Thursday, WSJ reported the latest absurd twist in the Deutsche Bank LIBOR manipulation saga. Apparently, just one month after the April settlement with regulators, the bank said it had "lost" records of chats between employees dating back to 2005. Deutsche Bank couldn’t say how many chats might have disappeared, and although the bank promised to try very hard to recover them, it did concede that unfortunately, they may be lost forever which could mean that its disclosures in connection with the settlement are incomplete. Here’s more [8]:
A month after reaching a $2.5 billion settlement over interest rate rigging, Deutsche Bank AG told regulators its disclosures may have been incomplete because it accidentally failed to archive electronic chats involving its employees, people familiar with the matter said.
The bank is working to recover the records from its systems but might have permanently lost an unknown number of chats dating back to 2005, the people said.
The disclosure poses a new regulatory headache for the German lender. Deutsche Bank already has been criticized by regulators for shortcomings in retaining data, including the destruction of hundreds of audiotapes that U.K. regulators said could have been relevant to their investigation into manipulation of the London interbank offered rate, or Libor.
Deutsche Bank disclosed the problem to regulators, including the New York Department of Financial Services, in May, a month after the bank entered into the settlement with a handful of authorities in the U.S. and the U.K., the people familiar with the matter said.
“After we discovered this software defect in one of our internal messaging systems, we reported it to our regulators and are presently working with them to rectify it,” the bank said in an emailed statement. “We have been able to recover a majority of the chats via a backup system.”
Yes, Deutsche Bank has recovered "a majority of the chats" and wouldn’t you know it, none of the recovered chats contains "any communications the bank considers new or relevant to the Libor investigation."
As much as everyone wants to believe that a rogue software program may be responsible for the selective deletion of LIBOR related internal chats, The Department of Financial Services is going to look [8] into it anyway because after all, it's certainly possible that Deutsche Bank simply wiped the chats away so as to cover up something even worse than what’s already out there regarding the bank’s role in rate setting collusion.
The bank’s lawyers told officials at the department that the failure to archive was caused by an unintentional software glitch and that it learned about the error after the settlement, two people familiar with the matter said. The purely internal messaging system, called “DB Chat,” was used by employees going back more than a decade.
The Department of Financial Services, New York state’s top banking regulator, has begun a probe of the incident. It is examining whether potential violations that should have been covered by the Libor settlement weren’t reported because of the error, according to one of the people familiar with the matter. The office is also investigating whether or not the error was intentional and when the bank discovered it.
Amusingly, the chats "date back to 2005", which is precisely when Anshu Jain instituted the new seating arrangement that greased the wheels of the rate rigging machine at Deutsche.
So we won't hold our breath waiting for Deutsche Bank's rigorous internal investigation to uncover anything material here and even if this ends up causing the New York Department of Financial Services to revisit the terms of the settlement, any additional fines or "punshments" will of course be inconsequential, but what is interesting is that given the sheer depravity revealed [9] in the transcripts of chats that were uncovered in the course of the original probe, one shutters to think what was so bad that it had to be selectively and deliberately purged forever.
Then again (and we'd be remiss if we didn't draw this rather obvious parallel): "what difference at this point does it actually make?"
