Deutsche  bank

Former Deutsche Bank Employee Claims Bank Took Big Libor Bets During Crisis Because It Could Influence Rates

The Wall Street Journal has an exclusive story based on a whistleblower leak, apparently with supporting transaction records.

In 2008, Deutsche Bank made very large bets instruments linked to one, three, and six month dollar, euro, and sterling Libor, that differential between one month rates versus the three and six month tenors would widen as the crisis became more severe. The German bank reportedly made over €500 million on these trades.

What is significant is that these were very large wagers, particularly at a time when most banks were desperate to shed risk. This is the guts of the story:

The documents from the former Deutsche Bank employee set out how traders in London and New York working for the German bank’s global-finance unit successfully bet that borrowing costs in euros, U.S. dollars and British pounds over three- and six-month periods would rise faster than one-month interest rates because of deepening stress throughout the global financial system.

The interest-rate bets included an estimated potential profit of €24 million for each hundredth of a percentage point that the three-month U.S. dollar Libor increased compared with the one-month U.S. dollar Libor, according to the documents.

The former employee has told regulators that some employees expressed concerns about the risks of the interest-rate bets, according to documents. He also said that Deutsche Bank officials dismissed those concerns because the bank could influence the rates they were betting on.

Read more at http://www.nakedcapitalism.com/2013/01/former-deutsche-bank-employee-claims-bank-took-big-libor-bets-during-crisis-because-it-could-influence-rates.html#2VDs26cxjLkFVqHX.99

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