A man walks past Deutsche Bank offices in London in this file photo.LUKE MACGREGOR/Reuters
Deutsche Bank AG is close to resolving a multiyear probe by U.S. and U.K. authorities into interest-rate manipulation, with a U.K. subsidiary expected to plead guilty, according to two people familiar with the matter.
Germany's biggest bank will probably finalize a settlement this month, these people said. The unit expected to plead is Deutsche Bank Group Services, one of the people said.
The bank is also expected to pay penalties of more than $1.5-billion to wrap up probes by the U.S. Justice Department, the Commodity Futures Trading Commission, New York's Department of Financial Services and the U.K.'s Financial Conduct Authority, according to one of the people. The penalty could be larger than those levied against other global banks for interest-rate rigging claims.
Spokesmen for the Department of Justice, the CFTC and New York's DFS declined to comment. Deutsche Bank said in a statement that it will "continue to work with the authorities that are reviewing interbank offered rates matters."
"The psychological effect is that the uncertainty is gone," said Stefan Bongardt, an analyst at Independent Research GmbH in Frankfurt, who has a hold recommendation on the stock. "For Deutsche Bank, Libor is one of the last big legal disputes. There could be relief in the market even if it's a bit over expectations."
The talks were reported earlier by the New York Times.
Deutsche Bank shares rose 0.8 per cent to 33.25 euros at 9:07 a.m. in Frankfurt. They have gained 34 per cent this year.
Several banks have been probed for rigging the London interbank offered rate, a key interest rate tied to instruments such as mortgages, student loans and credit cards. Deutsche Bank, one of more than a dozen Libor-panel banks, is accused of giving false information in response to a daily survey by the British Bankers' Association, which determines the daily rate for Libor in a variety of currencies, including the Euro, the U.S. dollar and the yen.
Netherlands-based Rabobank Groep, Barclays Plc, UBS Group AG, Lloyds Banking Group Plc and Royal Bank of Scotland Plc have already reached Libor-manipulation settlements.
Deutsche Bank first said it was under investigation over Libor manipulation in March 2012, and that it had received requests for information from U.S. and European regulators for the period 2005 to 2011.
In October, the bank said it was in discussions with some authorities about a resolution. The German lender previously was fined €725-million ($773-million) by the European Union for manipulating yen Libor and the euro interbank offered rate.
Bafin, Germany's financial market regulator, has also been scrutinizing Deutsche Bank's role in setting Libor, including what co-Chief Executive Officer Anshu Jain knew about the behavior, people with knowledge of the situation have said.
The investigation hasn't found any evidence Jain knew about or participated in possible interest-rate manipulation, German newspaper Handelsblatt reported in December. Bafin has also concluded that other board members didn't know about or take part in any such activity, Handelsblatt said.
Sabine Reimer, a spokeswoman for Bafin, declined to comment.
Deutsche Bank set aside €3.6-billion in legal and operational risk provisions at the end of December. The bank doesn't provide details on the reserves. Over the last three years, the bank's litigation expenses totalled about €7.1-billion.
The penalty said to be under discussion for Deutsche Bank would be greater than for the banks that went before. Barclays, which cooperated early in the probe and didn't plead guilty, paid $451-million in 2012. At the end of that year, UBS was penalized $1.5-billion and its Japanese unit entered a guilty plea.
In 2013, RBS paid about $600-million to settle U.K. and U.S. probes, while Rabobank Groep paid €774-million in late 2013, the equivalent of $1.1-billion at the time. Last year, Lloyds settled with U.S. and U.K. authorities for $383-million.
A deal would allow Deutsche Bank to move along, said Gary Townsend, a former regulator who now runs the hedge fund GBT Capital Management LLC in Chevy Chase, Maryland.
"Any company, even if they have to plead guilty to charges, wants to get their problems behind them," Townsend said. "I don't think the market will hold this against Deutsche Bank."
The Libor investigation is one a handful of global inquiries into how banks may have rigged benchmarks that also include foreign exchange and precious metals. In November, six global banks paid a combined $4.3-billion to settle civil claims it rigged foreign exchange rates with the CFTC and the U.K.'s FCA. Several banks are still waiting to settle possible criminal claims for FX rigging with the Justice Department.