Deutsche Bank AG will pay $220 million to several dozen states to resolve allegations that the German company manipulated benchmark interest rates including the U.S. dollar London Interbank Offered Rate (Libor) in the largest Libor-related settlement with state attorneys general to date. The settlement involves 44 states and the District of Columbia. An investigation led by the attorneys general of New York and California into the manipulation of Libor and other interest rates led to the settlement. It is the second in relation to alleged Libor manipulation by state attorneys general. Barclays Bank PLC and Barclays Capital Inc. agreed in August 2016 to pay $100 million to 43 states and the District of Columbia.
Deutsche Bank was one of 16 banks on a panel that made Libor submissions that reflected interest rates in the interbank market, but the investigation found that Deutsche Bank traders attempted to influence the Libor rate submissions. Other banks allegedly had been manipulating their submissions as well, and, as a result, the investigation concluded that the company knew the Libor rate was inaccurate, a fact not disclosed to government, not-for-profit and other entities when they entered into swaps and other contracts with Deutsche Bank.
According to the settlement agreement, the manipulation ran from 2005 through the height of the financial crisis, up to 2010. Traders would make requests to Deutsche Bank’s Libor submitters to alter the rate with the intent of benefiting trading positions. Deutsche Bank also communicated with other banks about Libor manipulation and even received requests from external sources like brokers to alter their submissions. None of these facts were disclosed to the public, government entities or other parties.
The settlement fund that will be distributed totals $213,350,000, with the remainder being used to cover expenses from the investigation, among other purposes. Entities that had Libor-related swaps and other investment contracts with Deutsche Bank will be notified if they are eligible to receive compensation from the settlement fund. The settlement stipulates that the attorneys general from states that are not part of the agreement have 60 days to join the others by signing an election agreement. The states not named in Wednesday’s settlement are Hawaii, Kentucky, Mississippi, South Dakota, Texas and Vermont.
Deutsche Bank has already paid $2.5 billion and entered into a deferred prosecution agreement to settle claims with U.S. and U.K. regulators that its traders helped rig Libor and other rates. Deutsche Bank made the settlement in 2015 with the U.S. Department of Justice, the New York State Department of Financial Services, the U.S. Commodity Futures Trading Commission and the U.K. Financial Conduct Authority.