Deutsche Bank Profits Smashed By Mis-Selling Derivatives, Libor and FX Fixing Probe Provisions

Deutsche Bank's balance sheet was slammed by billions of euros worth of litigation costs which subsequently led the German lender to report a near 100% drop in profits.

According to Deutsche Bank's latest quarterly results statement, the group revealed that its total litigation reserves pot, which is used for anticipated legal difficulties, stands at €4.1bn (£3.5bn, $5.6bn), after rising by €1.2bn.

Quarterly pre-tax profit fell by 98% to reach €18m, compared to analysts' expectations of a 43% drop in pre-tax profit to €642m.

"We expect the litigation environment to continue to be challenging," said the bank in a statement.

Libor Fixing Scandal

Deutsche Bank is still being investigated over a number of financial scandals and, unlike its rivals, it has not settled over a raft of probes.

Barclays was the first to settle with UK and US authorities in June 2012 for £290m.

Nearly six months later UBS agreed a record $1.5bn fine with US, UK and Swiss authorities and also admitted to one count of wire fraud relating to rigging rates in Yen.

In February 2013, RBS became the third major bank to settle with regulators while its subsidiary, RBS Securities Japan Limited, also pleaded guilty to one criminal charge of wire fraud.

In September this year, Icap was ordered to pay £55m to US and UK authorities after a significant number of brokers, including two managers, attempted to rig rates between October 2006 and November 2010.

Libor valuations directly influence the value of trillions of dollars of financial deals between banks and other institutions.

The benchmark reference rates are used in euro, US dollar and British sterling over-the-counter (OTC) interest rate derivatives contracts and exchange traded interest rate contracts.

FX Fixing Scandal

IBTimes UK exclusively revealed that a whistleblower alerted regulators in the US, UK and Switzerland in 2011 about some of the world's largest trading companies and banks manipulating benchmark sterling, US dollar and Swiss franc currency rates.

However, it was only until this year that these authorities started investigating the allegations of market rigging.

The US' Commodity Futures Trading Commission has prodded Deutsche Bank and Citigroup to hand over any evidence of wrongdoing related to potential currency market manipulation.

Deutsche Bank has allegedly spent millions of dollars going through traders' emails and chat sessions looking for specific dates, phrases and keywords in a bid to root out evidence of wrongdoing.

The daily $4.7tn currency market is the largest in the financial system and is pegged to the value of trillions of funds, derivatives and financial products. Morningstar estimates that $3.6tn in funds, including pension and savings accounts, track global indexes.

Mis-Selling Derivatives Scandal

Meanwhile, lawyers have presented an email from a Deutsche Bank employee referring to a customer being "screwed" as part of Unitech's evidence that it was knowingly mis-sold complex derivatives by the German finance giant.

The email, sent by Deutsche Bank employee Sanjay Agarwal, said "no one likes to know he got screwed," in relation to the Unitech deal on 12 September 2007.

Unitech tried suing Deutsche Bank over the last year for mis-selling derivatives linked to Libor and sought the repayment of a $150m loan made in 2007 by a consortium of lenders.

It also sought the repayment of $11m owed for a related interest rate swap agreement.

Unitech said it wouldn't have agreed to the loan or swap had it known Deutsche Bank was manipulating Libor, making both agreements invalid.

This court case is expected to conclude by the end of this year.