16:45 GMT12 June 2021
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    Deutsche Bank might have manipulated silver and gold prices in conspiracy with several other major lenders, and rigged its in-house indices in order to capitalise on the open market, two separate probes by a US court and a German watchdog, respectively, have alleged.

    Kristian Rouz – Trouble for Deutsche Bank AG seems to be far from having ended. Earlier this year the lender was badly shaken by a $14bn fine imposed by the US Department of Justice (DoJ) for the bank’s malpractice in mortgage issuance dating back to 2005.

    This time, a lawsuit filed with a court in Manhattan, alleges the German lender has manipulated gold and silver prices in its trading, along with several other world’s major banks, including the British-based global lender HSBC Holdings Plc, the Canadian Bank of Nova Scotia, the Swiss financial services company UBS Group AG, and several other enterprises.

    Moreover, Deutsche Bank finds itself under attack on the German front as well: domestic regulators commenced a probe into the lender’s alleged manipulation of its internal indices used to set price on the Italian company, Banca Monte dei Paschi di Siena (BMPS), in 2008. An audit undertaken by the German watchdog, suggests the bank might have rigged its pricing procedures in order to cash out on the BMPS deal concluded in December 2008, at the height of the global financial meltdown.

    With precious metals, however, the filed lawsuit claims Deutsche Bank and other world’s major lenders conspired to modify the spot prices on silver.

    Deals on the metal, the plaintiffs allege, were agreed upon via phone calls in advance on a daily basis, resulting in practice similar to insider trading, entailing losses for some market participants and unfair advantage for others. If proven, such a practice might be determined as illicit trading strategy, exacerbating Deutsche’s already tumultuous performance due to even higher legal and litigation costs.

    "UBS was the third-largest market maker in the silver spot market and could directly influence the prices of silver financial instruments based on the sheer volume of silver it traded," the lawsuit reads. "Conspiring with other large market makers, like Deutsche Bank and HSBC, only increased UBS’s ability to influence the market."

    According to the records from Deutsche Bank, two of its traders had directly communicated with two traders from UBS, exchanging information on customer buy-sell bids, initiating customer stop-loss orders and submitting knowingly fake bids with an intention of their revocation prior to execution in order to inflate prices (‘spoofing’).

    Among other financial institutions, the British bank Barclays, Bank of America Corp., and the Belgian lender BNP Paribas Fortis might have participated in this conspiracy to trigger artificial price increases in precious metals markets. Should the court rule such practices are indeed illegal, many enterprises across the financial sectors of several advanced economies might be slapped with fines, and precious metals market volatility would spike due to loss of investor confidence.

    Precious metals are amongst the so-called safe haven assets, rising in demand in times of rife volatility in stocks and real economy assets. Yet, if silver and gold prices had indeed been manipulated to a certain degree, their haven status will be put into question.

    As for the probe by the German authorities into the alleged Deutsche’s unsavoury role in the Monte Paschi deal in 2008, a yet another manipulation scheme might be revealed in Deutsche’s operational practices.

    “The Paschi deal is dependent on indexes, and then the indexes may have been manipulated to be more in favour of Deutsche Bank,” Michael Dempster of the University of Cambridge’s Centre for Financial Research said.

    According to an audit conducted by the German watchdog, Deutsche’s employees might have been trading futures in a particular way in order to affect the movements of indices, which, in turn, impacted the value of the Italian lender.

    “A targeted impact on the indices due to an increased level of trading activity could be ‘concealed,’’’ the audit discovered.

    However, no conclusions have been made, and it is unclear whether any punitive or further investigative action will entail.

    Apparently, watchdogs in the US and Europe, Germany, in particular, have been monitoring similar operations by several of the largest international banks over an extended period of time. Recent revelations of bank malpractice might eventually be used as leverage in order to contain the riskiest bank trading operations on a global scale in an effort to curb market volatility in the wake of emerging challenges. The risk of Italy exiting the euro is one of these.

    Last year, the US Securities and Exchange Commission (SEC) issued a warning of certain bank products based off internal indices being too complicated and non-transparent. The SEC even slapped Bank of America and UBS with fines over the banks’ manipulation of investor sentiment via their internal indices. In the UK, the Financial Industry Regulatory Authority (FIRA) fines Barclays for having rigged their internal index, misleading investors.

    However, all these measures have proven insufficient, as banks have extracted great value from market fluctuations caused by the product they have been selling. Increasing regulative pressure is likely to hamper banker meddling with the open market, however, it would be quite challenging, if not impossible, attempting to significantly diminish the role of lenders determining broader market moves.

    “Those investors can’t understand the investments themselves, let alone the indexes,” Craig McCann of Securities Litigation & Consulting Group said. “Fundamentally, such a product is great for investment bankers. Not investors.”

    Meanwhile, Deutsche Bank’s market value advanced to 6-months highest amidst the anticipation of the European Central Bank (ECB) additional stimulus aimed at preventing Itexit. Yet, with all the new trouble looming, Deutsche’s current investment rating is ‘sell’, according to a report by DZ Bank AG. Bank equities worldwide might be battered by the impending standoff with watchdogs over questionable practices in the months ahead.


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