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Deutsche (DB) Warned by Fed to Improve Compliance Procedures

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Deutsche Bank AG (DB - Free Report) has been privately reprimanded by the Federal Reserve to improve its anti-money laundering controls and other compliance procedures, as the bank has been persistently failing in paying heed to several pacts with U.S. regulators. The news was reported by Bloomberg.

The notice came in a yearly regulatory assessment stating that Deutsche Bank had failed to enhance its risk management practices despite bearing confidential accords with the central bank to work on those issues. According to a person briefed on the matter, the German bank’s leaders might be inflicted with sanctions, including prospects of a huge fine.

In the past, Deutsche Bank has had several clashes with U.S. regulators, such as foreign-exchange violations and money laundering cases. The German giant has also been answerable to Fed on its risk management practises. It has previously been slapped with a fine of $41 million for money laundering susceptibilities.

In February 2021, Deutsche Bank, along with three other foreign lenders, was penalised by Taiwan’s central bank in a currency speculation case. The central bank of Taiwan had issued a statement banning Deutsche Bank’s Taipei branch from trading Taiwan dollar deliverable and non-deliverable forwards. It further suspended the bank for two years from trading foreign-exchange derivatives.

Also, in January, Malaysia’s 1Malaysia Development Bhd. and SRC International SdnBhd filed lawsuits against Deutsche Bank and JPMorgan to recoup assets worth more than $23 billion. The lawsuit is related to a scandal that involves misappropriation of funds worth $4.5 billion, from 1MDB by top officials of the fund and their colleagues from 2009 through 2014.

Our Take

While Deutsche Bank's cost-control efforts and its strategic initiatives will likely support financials in the quarters ahead, the litigation issues due to the bank’s past business misconduct are a key concern. These might lead to higher legal costs in the future, thereby, hurting its bottom line.

Over the past six months, shares of the company have gained 30.3%, outperforming 22.2% growth recorded by the industry it belongs to.

Zacks Investment ResearchImage Source: Zacks Investment Research

Currently, Deutsche Bank carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Several banks continue to encounter legal probes and are charged with huge sums of money for business malpractice. This May, Bank of America (BAC - Free Report) agreed to pay a penalty of $75 million in order to settle an excessive fees probe.

Last December, Mr. Cooper Group Inc. (COOP - Free Report) was charged a penalty of $28.6 million in order to settle legal probes with Consumer Financial Protection Bureau regarding certain improper loan servicing practices committed between 2010 and 2015.

In November 2020, Wall Street major JPMorgan (JPM - Free Report) was penalized with a fine of $250 million for poor risk management and internal controls over the fiduciary business.

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