Deutsche Bank to pay record $2.5 bn to settle Libor manipulation

German banking giant Deutsche Bank has agreed to pay a record $2.5 billion fine to settle US and UK charges related to manipulation of benchmark interest rates during the period from 2005 through 2009.

The interest rates rigged were the London Interbank Offered Rate (Libor) and its European and Japanese counterparts Euribor and Tibor.

The overall penalty includes $2.175 billion imposed by the US authorities and £227 million ($341 million) charged by the UK's Financial Conduct Authority (FCA).

The penalty - the highest in a seven-year investigation that has left the reputation of the banking industry in tatters - took the total fines imposed on some of the world's top financial institutions to around $8.5 billion (See: Deutsche Bank hit hardest as EU fines 6 banks €1.7 bn for rate-rigging).

Criminal charges have been slapped on twenty-one people.

Senior staff at the lender were blamed for misleading regulators, failing to be open and cooperative, and prolonging the investigation.

The New York State Department of Financial Services (NYDFS) will get $600 million, the Commodities Futures Trading Commission (CFTC) $800 million, and the US Department of Justice (DOJ) $775 million.

NYDFS superintendent Benjamin Lawsky said in a statement, ''Deutsche Bank employees engaged in a widespread effort to manipulate benchmark interest rates for financial gain.''

Libor is used in global financial markets for a range of retail products from mortgages to derivatives and also as a gauge of financial health of a bank.

The benchmark interest rates are based on daily estimates of the rates at which banks can borrow funds in the inter-bank market.

The investigations revealed that during the period 2005-2009, certain Deutsche Bank traders frequently requested that certain submitters submit rate estimates that would benefit the traders' positions, rather than the rates that complied with the rules.

From 2003 to 2010, Deutsche Bank employees used online chats, email and phone calls to arrange for moving benchmarks higher or lower  to make a trade more profitable.

Regulators released several examples showing  Deutsche Bank traders operated to fix the rates. In one message from 2005, a Deutsche Bank trader asked a fellow bank employee, "can we have a high 6mth libor today pls gezzer?" The employee responded: "sure dude, where wld you like it mate ?"

The offenders were mainly based in London, but also in Frankfurt, Tokyo and New York. Many of them have been terminated for their misconduct.

NYDFS ordered the Deutsche Bank to terminate seven senior executives including a managing director and four directors based in London.

Further, two employees of the bank, who were earlier terminated and later reinstated on a German court decision, have been banned from assuming any duties involving rate submissions or any matter related to the US.

FCA said in a statement that the fine is large because Deutsche Bank misled the investigations.

''Deutsche Bank's failings were compounded by them repeatedly misleading us.  The bank took far too long to produce vital documents and it moved far too slowly to fix relevant systems and controls,'' Georgina Philippou, FCA acting director of enforcement and market oversight, said.

Deutsche bank was accused of not having adequate systems and controls in place specific to benchmark rates.

"One division at Deutsche Bank had a culture of generating profits without proper regard to the integrity of the market. This wasn't limited to a few individuals but, on certain desks, it appeared deeply ingrained," Philippou said.

So far, financial regulators have charged over $8.5 billion from global financial giants for their rate rigging offences, while twenty one traders and brokers face criminal charges.

Deutsche Bank said in a statement that it accepts the charges and plans to set aside an additional €1.5 billion ($1.6 billion) to cover legal costs in the first quarter.

"We deeply regret this matter but are pleased to have resolved it. This agreement marks another step in addressing the past and ensuring that the Bank earns back the trust of its clients, shareholders and society at large," the bank's co-CEOs Jurgen Fitschen and Anshu Jain said.

Yesterday's settlement is part of ongoing investigations into interest rate rigging by the world's biggest banks, allegations on which first surfaced in 2008.

British banking major Barclays was the first to be fined $450 million in 2012. Swiss financial giant UBS was imposed a previous record fine of $1.5 billion also in 2012. Others who settled similar charges include The Royal Bank of Scotland, Lloyds Banking Group and the Netherlands' Rabobank.