Deutsche Bank, the largest bank in Germany, mistakenly paid $6 billion to a hedge fund client in a “fat finger” trade through its foreign exchange trade in June, according to a report from the Financial Times.
The report said Deutsche Bank recovered the money from the US- based hedge fund the following day. However, the incident raised questions regarding the operational controls and risk management of the German bank. It was an additional embarrassment to the German bank’s forex team in London, which is currently under regulatory investigations.
A junior member of the Deutsche Bank’s forex sales team processed the $6 billion trade while his superior was on holiday, according to people familiar with the situation. The junior trader processed a gross figure instead of processing a net value, explained one of the sources. He said the trade had “too many zeroes.”
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Market observers were wondering why Deutsche Bank failed to spot the $6 billion error given the fact that the German bank implements a “four eyes principle,” which requires another person to review every trade before processing it.
Two persons familiar with the issue emphasized a trading mistake is common, but the $6 billion mistake was rare. Deutsche Bank reported the incident to the European Central Bank (ECB), the UK Financial Conduct Authority, and the US Federal Reserve.
Deutsche Bank CEO said tightening internal process is necessary
In July, Deutsche Bank co-CEO John Cryan emphasized the importance of tightening and sharpening its internal process and improving its culture as well as relations with regulators.
“Our cost base is swollen by poor and ineffective processes, antiquated and inadequate technology, too many tasks being completed using manual labor and, too frequently, unsuccessful investments in our infrastructure,” said Mr. Cryan in a recent memo.
Deutsche Bank is currently facing regulatory investigations worldwide due to alleged wrongdoings including violating US sanctions against Iran, rigging Libor interest rates and foreign exchange markets as well as money laundering in Russia.
A recent report suggested that the close allies of Russian President Vladimir Putin were among those who benefited from Deutsche Bank’s trades, which are currently under scrutiny by US regulators.
Deutsche Bank reorganization
Today, Deutsche Bank announced its decision to restructure its business division and leadership as part of its Strategy 2020. The Supervisory Board decided to split the bank’s Corporate Banking & Securities (CB&S) into two business divisions starting on January 1, 2016.
Deutsche Bank will combine its Corporate Finance business in CB&S with Global Transaction Banking Banking (GTB) to create a business unit called Corporate & Investment Banking.
The German bank will combine the sales and trading activities of CB&S to create a new business unit called Global markets. Deutsche Bank said it will no longer use the name CB&S.
Furthermore, Deutsche Bank announced several leadership changes. CB&S current co-head Jeff Urwin and Colin Fan will joint the Management Board. Stefan Krause, a long-term member of the Management Board, will step down on October 31.
Its current COO Henry Ritchotte will resign by the end of the year. Kim Hammonds, the current Global CIO and co-head of Group Technology Operations at Deutsche Bank will become COO.
Quintin Price will also join the Management Board while Michele Faissola, head of Deutsche Asset & Wealth Management will leave after a transition period. Karl von Rohr, current COO for Global, regional Management will become Chief Administrative Office, and Sylvie Matherat, the head of Government and Regulatory Affairs will become Chief Regulatory Officer.
Daniele Brupbacher, an analyst at UBS, commented, “This has the clear fingerprints of John Cryan. He is ready to take tough decisions and really wants to change things.”
Earlier this month, Deutsche Bank announced disclosed that it was expecting to report a net loss of €6.2 billion (approximately $7 billion) after charges for the third quarter of this year.