Securities and Exchange Commission to fine Deutsche Bank

The bank is expected to be fined around £36 million for misstating derivatives losses.

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By :  ,  Financial Analyst

Deutsche Bank is to be fined around $55 million (£36 million) after misstating losses on a derivatives portfolio during the financial crisis.

The German bank is alleged to have misstated its positions by at least $1.5 million, according to the Securities and Exchange Commission (SEC).

Commenting on the outcome of the investigation, Deutsche said: "The SEC acknowledged the bank's cooperation throughout the investigations and did not bring any charges against individuals in this matter. The bank does not admit or deny the charges outlined in the order."

"Hiding billions"

In 2012, the Financial times reported that three ex-Deutsche employees had approached the SEC, telling them that the bank was hiding billions of dollars in losses.

Speaking about the fine, one of the ex-employees said that he was satisfied with the result – five years after complaints were originally made to the regulator.

According to complaints made in 2010 and 2011, the bank was overstating profits in a $130 portfolio of "leveraged super senior" trades. Five years previous, these had been seen as the future of credit derivatives and were designed to behave like the most senior tranche of a typical collateralised debt obligation. Deutsche became a leading operator in this market.

The ex-employees said that the bank had not correctly accounted for the "gap option". In a statement on Tuesday (May 26th), Deutsche said that it had not accounted for that risk because it "did not believe there was a reliable method for measuring the gap risk in light of the existing market conditions."

However, other banks, including Goldman Sachs, did account for it – employees and experts say this was worth billions of dollars.

When the financial crisis happened, the ex-employees say that Deutsche's income was inflated relative to other banks, giving them an advantage.

Deutsche bank claims that it did not suffer any losses and has cut its portfolio by more than 90 per cent.

In Frankfurt on Tuesday, Deutsche Bank closed at 28.13, this was 15.84 per cent below its 52-week high of 33.42 on April 14th.

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