
Deutsche Bank to Pay Record $2.5B to Resolve Libor - svtrent
http://www.bloomberg.com/news/articles/2015-04-23/deutsche-bank-to-pay-record-2-5-billion-to-resolve-libor-probes
======
marcusgarvey
> The Justice Department levied a $775 million penalty and will install a
> monitor at the bank for three years to ensure compliance with the terms of
> the deferred prosecution agreement.

These deferred prosecution agreements are horrible. Every major bank has
SEVERAL of them. Deter much? Absolutely not. Here's what a recent editorial in
the Financial Times had to say about this [1]:

In the US, the most blatant expression of the failure to rein in the financial
industry is the use of deferred prosecution agreements. These are deals which,
despite sufficient evidence for criminal prosecutions, allow wrongdoers to pay
fines and make commitments to improved conduct in return for avoiding the
admission of criminal guilt.

In an important speech last Wednesday, US Senator Elizabeth Warren condemned
the widespread use of DPAs against financial industry lawbreakers. Her main
argument is that DPAs’ main punitive tool — fines — have far too little
deterrent effect. A fine paid by a corporation is essentially a raid on its
shareholders’ funds. What is more, the lag from the commission of a financial
crime to the implementation of a DPA is long. Both mean that even huge fines
(some have been in the billions) are highly unlikely to make much difference
to the economic prospects of the responsible individuals when they decide
whether or not to break the law.

To put it simply, too many get away with cheating. Criminal prosecutions would
stand a better chance of holding culpable individuals to account — and
therefore to discourage wrongdoing in the first place. Deterrence aside, there
is also an important democratic value in lawbreakers being publicly branded as
such.

So Ms Warren is right. DPAs, originally intended to deal with low-stake crimes
with little chance of repetition, have become a blight on a financial sector
that has proved capable of crimes that are neither low-stake nor one-off.

[http://www.ft.com/cms/s/0/f26a9acc-e515-11e4-a02d-00144feab7...](http://www.ft.com/cms/s/0/f26a9acc-e515-11e4-a02d-00144feab7de.html)

~~~
cmdkeen
The Economist also raised the point recently that these "offers" from the
Government are essentially shakedowns, the risk to the bank if they actually
fought the charges is so great that it is never in their interest to do
anything but pay up. When you consider that States as well as the Federal
Government are capable of doing this the potential for shenanigans increases.

In both cases justice is not done, wrongdoers not actually punished etc.

~~~
mathattack
It's bad for everyone - it's not fair to firms, and justice isn't served. But
follow the $... The states get a lot of income, and executives stay out of
jail. If every bank is getting shaken down equally, no exec loses relative to
their peers.

This isn't to say that I condone the bad behavior. If anything, I am amazed
that more people haven't gone to jail.

------
late2part
This should be a larger fine. People need to go to jail. These people
corrupted of the primary substrates of the financial system. This shows how
endemic the corruption is and how little our system punishes people for
cheating. Either the populace really doesn't care, or else the system is
corrupt and the financial people have undue influence on the government.
Either way, it is bad and it needs to change.

~~~
bboreham
13 people charged here: [http://www.sfo.gov.uk/press-room/latest-press-
releases/press...](http://www.sfo.gov.uk/press-room/latest-press-
releases/press-releases-2014/libor-investigation-further-charge-.aspx)

two more here: [http://www.justice.gov/opa/pr/two-former-rabobank-traders-
in...](http://www.justice.gov/opa/pr/two-former-rabobank-traders-indicted-
alleged-manipulation-us-dollar-yen-libor-interest-rates)

~~~
late2part
Looks like the trial is underway or so [1]

Still, only 13 people charged in what as institutionalized corruption. I
believe the leaders of these companies were knowledgeable about what happened,
or should have been.

[1] [http://www.reuters.com/article/2015/03/20/rabobank-libor-
all...](http://www.reuters.com/article/2015/03/20/rabobank-libor-allen-
idUSL2N0WM2AC20150320)

~~~
rrrx3
Should have been, yes. Actually knowledgable - not in a million years. Those
who sit on the Group Executive Committee are extremely far removed from the
day to day goings on. Running a 100k+ person bank with 4 completely different
divisions is totally different from running a desk. The odds that someone on
the GEC even knows the name of a person on a desk lower than MD or D is slim
to none, unless that person is an absolute rockstar.

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bko
I think it's important to know what Libor is and how it's determined.

> Each morning, just before 11 a.m. Greenwich Mean Time, a group of major
> banks are asked the rate at which they could borrow funds from other banks.
> The banks confidentially send their results for each of the 15 loan
> maturities - ranging from overnight to one year - to the market intelligence
> firm Thomson Reuters. The organization throws out figures in the highest and
> lowest quartile and averages the remaining half. [0]

The rate is used to determine the interest paid on some mortgages (adjustable
rate mortgages) as well as some securities (floating rate, pegged to Libor and
swaps). You don't need to know too much about finance to suspect that the
method of determining Libor (informal polling of banks) is ripe for
manipulation. I don't think the manipulation was biased in any one direction
but probably biased based on the particular banks opportunities for that day.
Anyone investing in these products or with floating rate mortgages should (in
theory) understand how their products work and understand the implications of
the method that Libor is set.

This isn't meant to excuse collusion. Just because something is completely
transparent and easily gamed doesn't excuse dishonesty. My comment is just
meant to temper the response and perhaps consider a better system for
determining benchmarks.

[0] [http://www.investopedia.com/ask/answers/12/how-is-libor-
dete...](http://www.investopedia.com/ask/answers/12/how-is-libor-
determined.asp#ixzz3Y8kc1mbR)

~~~
bboreham
> but probably biased based on the particular banks opportunities for that
> day.

Not the banks, individuals. The people doing the manipulating were paid on P&L
from particular sub-sets of the bank's overall position (their 'books'). So it
is entirely possible that while those people's P&L went up on a given day, the
bank's overall P&L went down.

~~~
easytiger
And the counter party's pnl went up

~~~
bboreham
The bank as a whole has thousands or millions of counterparties.

------
rayiner
This is for the regulatory investigations. There will also be private civil
suits. Those will be made difficult by the need to prove damages:
[http://www.bloomberg.com/bw/articles/2013-06-27/calculating-...](http://www.bloomberg.com/bw/articles/2013-06-27/calculating-
the-cost-of-the-libor-scandal-to-investors).

------
rorykoehler
Banks should receive trading sanctions too (like doping bans for athletes). If
all they have to do is pay their way out they will always take the risk of
doing illegal business and hope to get away with it. This risky behaviour is
so ingrained in the financial industries culture that it's clear the default
approach of high risk actions while hoping for the best isn't going to go away
without more and more serious deterrents.

This along with heavy prison sentences all 'round should help curb the
corruption a little.

~~~
cmdkeen
The problem with trading bans is that they effectively kill the bank, or a
substantial chunk - which then causes all the knock on effects of a bank
failing which might very well be more expensive to the Government / society in
the long run. It all comes back to "too big to fail".

~~~
rorykoehler
They could be forced to split off the culpable area of the business and sell
it at a below market value or even free price.

~~~
ryanlol
That's probably a good solution if your intention is to destroy any trust
that's left in the banking system.

~~~
rorykoehler
I have zero trust in the banking system or even the monetary system as it
stands. I only partake because I have no other viable choice. The system is so
flawed that it's doomed to fail. It's not a question of if but when.

------
dankohn1
If you want change, look at Elizabeth Warren's two strokes and you're out
proposal [0]:

[0] [http://www.vox.com/2015/4/15/8420789/elizabeth-warren-
prosec...](http://www.vox.com/2015/4/15/8420789/elizabeth-warren-prosecutions)

------
GCA10
Another reason not to applaud: the U.S. and UK governments have been furiously
manipulating interest rates themselves since 2008, through the big bond
purchases that drive short-term rates near zero. These policies didn't help
the economy as much as hoped. They also destroyed small savers' ability to
earn interest. But the politicians pressed on anyway.

What if the government fined itself $25 billion and distributed the money to
the public? I'd like that settlement more. By contrast, this Libor settlement
actually taxes the public -- because the ultimate owners of bank shares are
our very own pension funds or 401ks -- and then gives the $$ to the
government. Meanwhile, the rogue traders get no punishment whatsoever.

I can't find anything in this deal to like.

------
nsajko
Another issue (in addition to executives not going to jail) is that monetary
fines are inefficient against large corporations, especially banks, because if
the fine is significant, it hurts a whole economy. A possible solution could
be equity fines, but that's not yet practiced anywhere.

Edit: an equity fine would be if a corporation is forced to make more stocks,
which are taken as a fine and sold.

~~~
serve_yay
I guess it doesn't count as moral hazard when the banks have no incentive to
refrain from behaving poorly.

------
jgalt212
Somebody please name names here. While the crimes did occur at Deutsche Bank,
it was actual human beings that were the bad actors.

Who fixed the rates? And why aren't they going to jail?

------
coldcode
For a big bank, that's pocket change.

~~~
sz4kerto
Not exactly, no. This is somewhere between 2 to 4 quarterly profit for DB.

~~~
spuiszis
This reduces their taxable income, so part of it is a benefit to DB so the
real number they pay is around ~67% of the headline number. We also have no
idea how profitable LIBOR manipulation is over several years. I can imagine
incredible lucrative.

~~~
fitchjo
Actually, at least for the US, fines paid to governmental agencies are
generally non-deductible and so DB will take the full brunt of the fine to the
bottom line.

~~~
spuiszis
I agree in theory but in practice, it's not always the full amount but you get
things like BofA deducting $12bn pre-tax from their $17bn mortgage
settlement[1] or JPMorgan able to deduct a large amount of their $13bn
fine[2]. There is always a loophole somewhere.

[1][http://www.forbes.com/sites/robertwood/2014/08/21/bofa-
grabs...](http://www.forbes.com/sites/robertwood/2014/08/21/bofa-
grabs-12-billion-tax-write-off-from-17-billion-mortgage-settlement/)
[2][http://www.nytimes.com/2015/04/24/business/dealbook/deutsche...](http://www.nytimes.com/2015/04/24/business/dealbook/deutsche-
bank-settlement-rates.html?ref=dealbook)
[3][http://www.newsweek.com/2014/11/07/giant-penalties-are-
giant...](http://www.newsweek.com/2014/11/07/giant-penalties-are-giant-tax-
write-offs-wall-street-279993.html)

------
steamy
and yet no single conviction for any bankster involved in all of these
corruption scandals. Just fine the shareholders and fill the pockets of the
fat cats in the govt to buy their silence and let the executives go free to
keep plundering people's money.

A win-win for all except for we the people!

