Deutsche Bank AG’s Christian Bittar, one of the firm’s best-paid traders, lost about 40 million euros ($53 million) in bonuses after he was fired for trying to rig interest rates, three people with knowledge of the move said.
The lender dismissed Bittar in December 2011, claiming he colluded with a Barclays Plc trader to manipulate rates and boost the value of his trades in 2006 and 2007, said the people, who requested anonymity because they weren’t authorized to speak publicly. His attempts to rig the euro interbank offered rate and similar efforts by derivatives trader Guillaume Adolph over yen Libor are the focus of the bank’s probe, the people said. Both traders declined to comment for this story.
“Upon discovering that a limited number of employees acted inappropriately, we sanctioned or dismissed those involved and clawed back all of their unvested compensation,” Deutsche Bank spokesman Michael Golden said in a statement. “To date we have found no link between the inappropriate conduct of a limited number of employees and the profits generated by these trades.”
Regulators are investigating claims that traders at more than 16 companies manipulated submissions used to set benchmarks such as Euribor to profit from bets on interest-rate derivatives. Ex-traders say their firms had no rules governing how Euribor and Libor should be set and that managers were aware that traders, who stood to benefit from where the rate was fixed, were on occasions making submissions to the benchmarks.
Anshu Jain
Deutsche Bank’s Golden said the Frankfurt-based lender is cooperating with regulators and that its continuing internal investigation has cleared current and former management board members of wrongdoing. Co-Chief Executive Officer Anshu Jain, who said this week he was sickened by the scandal, has faced calls from German lawmakers to publish the findings of a probe by BaFin, the country’s financial regulator, into the lender’s rate-submission process. That inquiry is still to be completed.
Bittar, who joined Deutsche Bank in 2001, was a proprietary trader specializing in short-term derivatives contracts and entitled to a percentage of the profit from his trades, the people said. He took billion-euro positions on the direction of short-term interest rates with the firm’s own money and reaped hundreds of millions of euros in profit for the bank, the people said. The bonuses Deutsche Bank pays its staff typically vest over a three-year period.
After the lender started to scale back its proprietary- trading operations in 2008, Bittar was named head of money market derivatives trading in 2010 and moved to Singapore. He now works for Bluecrest Capital Management LLP, Europe’s third- biggest hedge fund with $30 billion under management.
Euribor Spread
One of his strategies involved betting that the cost of borrowing in euros for three and six months would rise more quickly than one-month rates, the people said. That paid off after the collapse of Lehman Brothers Holdings Inc. in September 2008, when banks became unwilling to lend to each other for all but the shortest periods, they said.
The average spread between six-month Euribor and the overnight indexed swap rate, a gauge of banks’ reluctance to lend, widened to about 110 basis points in the 12 months ended Sept. 15, 2009, compared with an average gap of 68 basis points in the year-earlier period, data compiled by Bloomberg show. The spread between one-month Euribor and the overnight indexed swap rate widened to 48 basis points from 29 basis points in the same period. A basis point is 0.01 percentage point.
“The trading strategy, which was subject to the bank’s risk limits and used by many in the marketplace, was based on a legitimate market view that diversified and lowered the bank’s portfolio risk during the peak of the financial crisis,” Golden said.
Barclays Trader
Former Barclays euroswaps trader Philippe Moryoussef is under investigation by the U.S. Department of Justice, Commodity Futures Trading Commission, and Britain’s Financial Services Authority for colluding with counterparts at Deutsche Bank, Credit Agricole SA, Societe Generale SA and HSBC Holdings Plc to influence Euribor, a person familiar with the probe said. Moryoussef couldn’t be traced through the Internet or directory assistance.
Euribor is derived from a survey of banks asking how much it costs them to borrow from one another in euros for periods from overnight to one year. About 241 trillion euros of interest rate swaps are tied to three-month Euribor alone.
Like the London interbank offered rate, it’s based on estimates rather than actual trade data, leaving the rate vulnerable to manipulation. The 39 banks that contribute to the rate outnumber the 18 that help set dollar Libor, making it harder for individual traders to rig it.
Setting Rates
Bittar was also alleged to have had inappropriate communications with colleagues responsible for making the bank’s Euribor submissions, the people with knowledge of the firm’s internal processes said.
Bittar and Adolph, a yen derivatives trader who joined Deutsche Bank from Merrill Lynch & Co. in 2008, are the only two employees to be fired by the German lender over rate-rigging to date, the people said.
Adolph was dismissed in December 2011 for inappropriate communications with UBS AG’s Thomas Hayes, the people said. Adolph settled out of court with Deutsche Bank after the firm tried to withhold some of his stock awards that had already vested, according to two people with knowledge of the case.
Adolph was responsible for inputting the firm’s submissions to the yen benchmark and trading derivatives whose values depended on it, the people said. U.S. prosecutors charged Hayes with wire fraud and price-fixing in December. His lawyers at Fulcrum Chambers declined to comment.
‘Gigantic Fix’
The Justice Department, in its December settlement with Zurich-based UBS, cited a conversation on or about May 21, 2009, between Hayes and an individual only identified as ‘Trader B.’ That trader is Adolph, two people with knowledge of the exchange said.
“cld you do me a favour would you mind moving you 6m libor up a bit today, i have a gigantic fix,” Hayes said, according to the filing.
“I can do taht,” Adolph replied. He later increased Deutsche Bank’s six-month yen Libor submission 6 basis points that day, the transcript shows. That was the first increase in the firm’s submission since March 3. It had remained unchanged since April 15.
“u happy with me,” Adolph asked Hayes the following day.
“thx,” Hayes replied.
Deutsche Bank is among lenders that have yet to reach settlements with regulators probing the Libor-rigging scandal. Barclays, Britain’s second-biggest bank, was the first to settle, paying a 290 million-pound ($458 million) penalty in June for manipulating borrowing costs. UBS, Switzerland’s biggest bank, was fined $1.5 billion in December. Royal Bank of Scotland Group Plc, the biggest government-owned lender in the U.K., may pay as much as 500 million pounds in penalties in coming weeks, according to two people with knowledge of the talks.
