Deutsche Bank Forex Mis-Selling Probe Reveals Years of ‘Bad Faith’ Toward Clients

• Deutsche Bank claims to have tightened up procedures and replaced staff, but the ‘Project Teal’ review looks set to expose a range of underhand dealings.
• With clients taking the bank to the High Court and millions already paid out in settlements, the forex market braces itself for another ‘warts and all’ report.
• Operations which potentially ran for years have come to light only after the intervention of a whistle-blower.

The reputation of big banks operating in the international currency markets has taken another hit. For years, global giant Deutsche Bank has been conducting a review on how its staff mis-sold complex derivative products to the bank’s clients. With ‘Project Teal’ apparently close to being finalised, the dossier is causing concern among Deutsche staff and the forex market in general.

The Financial Times first reported Deutsche Bank’s probe two years ago. Since then, sources have provided details of how a whistle-blower pulled the plug on a scheme involving high-ranking staff in the firm’s London and Spain offices that ran for years.

Early suggestions are that the lid was lifted on the scheme only after a managing director in charge of structured products had left the bank. There are growing concerns that the situation comes down to more than the actions of one rogue trader. The probe, conducted by a law firm on the bank’s behalf, has identified instances where numerous ‘red flags’ were missed.

Derivatives – Again

Derivatives may have been invented to help investors manage risk, but the complex financial instruments are again at the centre of a potential scandal. One individual close to the situation has said bank employees acted in “bad faith” for many years by pushing highly complex derivative deals on small and medium Spanish companies.

One of those firms is reported to have almost gone bust after the loopholes in the derivative deals unravelled. Another company, one of Spain’s largest hotel groups, is currently in the London High Court in the process of making a €500m claim against the bank. All this against the backdrop of Deutsche Bank reportedly having already paid tens of millions of euros to clients in settlements.

‘Project Teal’ – It Could Have Been Worse

With the report due to become more widely accessible, there is some relief for Deutsche Bank that initial claims of collusion made by the whistle-blower are yet to be substantiated. The investigation has so far failed to back up claims that Deutsche Bank staff and the financial directors of client firms illicitly shared the proceeds of the deals.

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About the author: Justin Freeman

Justin is an active trader with more than 20-years’ industry experience of working for big banks and hedge funds. He has an inside knowledge of how the financial markets work, thanks to roles including trader on a $750m Event-Arbitrage desk and CRO and COO of hedge funds running a variety of strategies. From stat-arb and trend-following CTA to fixed-income relative value. Firm’s he has worked at include big banks like Citi, and prominent hedge funds including D. E. Shaw and Millennium Capital Management.

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