Already a melting ice cube struggling with an overbearing derivatives exposure and myriad legal risks, Deutsche Bank has seemingly bounced from one criminal scandal to the next since the crisis, incurring billions of dollars in fines along the way. So it’s hardly surprising that the bank’s shareholders let out a collective groan Thursday morning when the BBC reported that German police had raided the bank’s Frankfurt headquarters, sending the bank’s shares lower by 2% to near all-time lows amid renewed fears that DB could face a devastating, potentially bankruptcy-inducing, fine.
Roughly 170 police officers, tax inspector and prosecutors fanned out across Frankfurt to search several DB buildings, according to the BBC. Germany’s public prosecutor has said the raid is connected with the role played by two employees in helping clients set up offshore account to launder money from criminal activities. Other employees are also being investigated over their involvement in the alleged money laundering.
The Frankfurt headquarters of Deutsche Bank have been raided by prosecutors in a money laundering investigation.
Germany’s public prosecutor alleged that two staff members have helped clients launder money from criminal activities.
Police cars were seen outside the tower blocks that house the headquarters of Germany’s biggest bank.
Other Deutsche offices in the city were searched in an operation involving about 170 police and officials.
The raid comes as DB is facing inquiries pertaining to the role its correspondent bank played in facilitating the historic money laundering fraud at Danske bank’s tiny Estonian branch. Earlier this month, a whistle blower implicated DB in the scandal and claimed that it helped clear $150 billion of the ‘suspicious’ $234 billion reportedly filtered through the bank by criminals in the former Soviet Union (and possibly even the family of President Vladimir Putin).
DB confirmed the raid and said it’s cooperating fully with the probe. If it is fined for conduct exposed by the Panama Papers, it wouldn’t be the first. Other European banks, including Sweden’s Nordea and Germany’s Handelsbanken, have been fined as a result of information contained in the Panama Papers.
Anonymously sourced reports claimed that the raid was connected with the revelations in the ‘Panama Papers’ Mossack Fonseca document dump, which exposed the bank’s role in helping wealthy individuals hide money from their respective countries. Back in August, German banking regulator BaFin demanded that DB improve its regulatory controls. These demands came nearly one year after the bank was fined $700 million for helping wealthy Russians move $700 million out of the country in the now-infamous ‘mirror trading’ scandal.
In 2016 alone, more than 900 clients doing a combined 311 billion euros in business with the bank dealt with an opaque British Virgin Islands based unit of the bank.
In total, the bank has racked up some $18 billion in fines since the crisis:
Deutsche Bank legal problems
DB market cap = about $19.5 billion
Fines/disputes since 08 = $18 billion
— Jonathan Ferro (@FerroTV) November 29, 2018
DB’s new CEO Christian Sewing has only been running the bank for a few months. But as we noted earlier this week, he’s already making moves to change up the senior management, as we reported earlier this week. Among a raft of executives expected to depart the bank was Deutsche’s Chief Regulatory Officer Sylvie Matherat, who reportedly had expressed concerns about the bank’s inadequate controls against financial crime.
Matherat has told associates she might need to prepare to leave the bank, and has expressed unhappiness with what she described to some associates as constraints to improving financial-crime controls and mending Deutsche Bank’s relationships with regulators, some of the people say.
Matherat, who joined the bank three years ago, was reportedly facing pressure from Sewing over her ability to improve processes for detecting and preventing money laundering and other violations through the division she supervises. But the reality is that DB’s criminal problems started long before her tenure, and expecting the bank’s deeply ingrained “ethical” problems to be fixed in one generation of management is simply ridiculous (meanwhile, investment-bank head Garth Ritchie is reportedly on his way out over “performance concerns”.)
Investors are clearly not happy. After all, if the bank becomes weighed down with toxic legal risks, it will be much more difficult for Sewing to sell it.