An internal review at Deutsche Bank AG found that some employees deliberately circumvented controls to make big profits by mis-selling products.
(Bloomberg) — An internal review at Deutsche Bank AG found that some employees deliberately circumvented controls to make big profits by mis-selling products.
The probe known as Project Teal showed that some employees on a London-based foreign-exchange desk sold derivatives to small and medium-sized Spanish companies even though they knew that the products were too complex for those clients, according to people familiar with the matter.
Staff exploited deficiencies in Deutsche Bank’s controls to keep the lucrative business going for several years, the people said, asking not to be named discussing the private information.
“As we have previously stated, we have been reviewing parts of our sales activities in structured FX derivatives and taken appropriate action,” a Deutsche Bank spokesman said by email. “As we and our regulators would expect, we are improving our processes and enhancing our controls. We cannot comment on the specifics of these matters.”
Deutsche Bank has been looking at dozens of deals in Spain for more than two years after clients started complaining that derivatives sold to them as cheap hedging products blew enormous holes into their bottom lines when exchange rates took an unexpected turn. The internal probe has since led to settlements with affected clients worth tens of millions of euros and resulted in the departure of several employees and executives, Bloomberg has previously reported.
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The German lender is also contesting some cases, notably a claim of €500 million ($534 million) by Palladium Hotel Group. The Spanish company has filed a lawsuit alleging that it entered into hundreds of “highly complex” foreign-exchange transactions that were “impossible” for Palladium to price, value or understand the risks and ultimately lead to huge losses.
Fewer than a dozen Deutsche Bank employees have been sanctioned as a result of Project Teal, which targeted the London desk and some parts of the lender’s Spanish operations, one of the people said. Some have left and others have been slapped with disciplinary actions including bonus cuts, the person said.
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The internal probe, which was conducted by a London-based law firm, also looked at deals and controls beyond the involved London desk but didn’t find evidence that similar misconduct occurred elsewhere, the person said. Still, some wider controls and procedures were changed as a result of the probe, the person said.
Other banks including Goldman Sachs Group Inc. and BNP Paribas SA have faced similar accusations of mis-selling derivatives in Spain, with wine exporter J. Garcia Carrion SA filing a complaint against Goldman with the UK’s Financial Conduct Authority in 2021.
The Financial Times reported earlier that Project Teal is nearly completed.
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