May 19, 2014 / 12:38 PM / 6 years ago

Threat of fines, litigation stalks Deutsche Bank

FRANKFURT (Reuters) - Deutsche Bank will ask shareholders for 8 billion euros (6.5 billion pounds) to strengthen its balance sheet as a business slump and hefty fines eat into profits, with the bank saying more penalties await.

Although Germany’s flagship bank has made it a top goal this year to resolve a long list of legal liabilities, new cases emerge as old ones get resolved.

Deutsche has paid around 5 billion euros in the past two years in fines and settlements. It ended March with 1.8 billion euros in provisions for litigation - funds to cover potential fines and settlements - and has identified an additional 2 billion euros in potential risks for which it has not provisioned.

Below is a summary of some of the key legal challenges faced by Deutsche Bank. It has declined to comment on the cases unless otherwise stated below.

KIRCH – Heirs to Leo Kirch’s media empire accused Deutsche Bank of hastening its collapse. The 12-year-old case appeared to have ended when Deutsche settled with the heirs in a deal costing the bank around 925 million euros. But the Munich public prosecutor in March widened an investigation into suspicions of attempted fraud in connection with the case to include Stephan Leithner, management board member in charge of legal matters. Co-Chief Executive Juergen Fitschen is already under investigation. Deutsche Bank said it was sure he would be cleared of wrongdoing.

CURRENCIES – Deutsche Bank has been questioned by regulators investigating possible manipulation of benchmark rates in the $5 trillion-a-day (2.96 billion pounds) foreign exchange market. The bank has launched its own internal inquiry, dismissed a small number of traders and has said it is cooperating with the investigation.

LIBOR – EU antitrust regulators last year slapped a record 1.7 billion euro penalty on six financial institutions including Deutsche Bank over attempts to manipulate the London interbank offered rate (Libor) and its euro equivalent Euribor. Deutsche was given the biggest fine of 725 million euros, while Swiss bank UBS and Britain’s Barclays avoided fines of 2.5 billion euros and 690 million respectively for revealing the existence of the cartel. Deutsche Bank has yet to be fined by U.S. and UK regulators as part of separate investigations.

LIBOR SUIT - U.S. government-controlled mortgage company Fannie Mae sued nine banks in October including Deutsche, accusing them of colluding to manipulate interest rates and seeking more than $800 million of damages.

MORTGAGE-BACKED SECURITIES - Deutsche Bank agreed in December to pay $1.9 billion to settle claims that it misled Fannie Mae and Freddie Mac, America’s biggest providers of housing finance, in the sale of mortgage-backed securities before the 2008 financial crisis. The deal, negotiated by the Federal Housing Finance Agency, is the second-largest regulatory settlement over claims that banks engaged in fraud in packaging and selling mortgage-backed securities, after a $13 billion deal with JPMorgan Chase.

DERIVATIVES – EU watchdogs charged 13 top investment banks including Deutsche last July with blocking exchanges’ access to the lucrative credit derivatives market.

MORTGAGE-REPURCHASE DEMANDS - Deutsche and other European banks face demands to buy back mortgage-backed securities. Clients who bought the securities say they were misled about the quality of the assets, which rapidly lost value after the U.S. mortgage market collapsed between 2006 and 2009. Deutsche faced $5 billion in repurchase demands at the end of 2013 and had provisions of $475 million against them. Analysts estimate Deutsche may eventually need to pay over $2 billion.

CARBON TRADING - Prosecutors have investigated 25 Deutsche Bank staff, including co-CEO Fitschen, on suspicion of tax evasion, money laundering and obstruction of justice. Around 500 police and tax inspectors raided Deutsche Bank, arresting five staff for several days in an inquiry linked to a tax scam involving the trading of carbon permits. Deutsche Bank said then it was cooperating fully with the authorities. There have been no major, public developments in this probe since December 2012.

MPS – Italian lender Monte dei Paschi di Siena reached a deal in December to close a loss-making derivative trade with Deutsche Bank, and agreed to drop a related civil lawsuit as a result. But in a letter published shortly after the settlement, German financial watchdog Bafin accused Deutsche Bank of misleading it over the controversial derivatives trade with Monte dei Paschi and of falsely accounting for the deal, a newspaper reported.

Reporting by Thomas Atkins; editing by Tom Pfeiffer

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