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Deutsche Bank (DB) Awaits Regulatory Penalty for FX Conduct

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Deutsche Bank AG (DB - Free Report) recently indicated that it is anticipating imposition of a monetary penalty from the Federal Reserve and New York’s Department of Financial Services, according to a Bloomberg report. The penalty is related to its conduct in the foreign exchange market.

The news came a day after the German lender announced that it has successfully escaped a fine from the U.S. Department of Justice (DoJ). Notably, DoJ closed its three-year old criminal inquiry into Deutsche Bank’s currency-trading activities without any action. However, these regulators are in their final stages of review and once the investigation is over, they will determine the amount of fines, if any.

The currency probes originated in 2014, when the DFS started investigating Deutsche Bank and Barclays PLC’s (BCS - Free Report) conduct using their electronic trading platforms. Eventually, the investigation spread to other U.S. banks.

In 2015, five of the several big banks, which were under the U.S. Justice Department’s currency-trading investigation, pleaded guilty. These were Citigroup Inc. (C - Free Report) , JPMorgan Chase & Co. (JPM - Free Report) , Barclays PLC, The Royal Bank of Scotland Group Plc (RBS - Free Report) and UBS Group AG (UBS - Free Report) .

Due to the nature of its business, Deutsche Bank has been involved in various litigation, arbitration and regulatory proceedings in Germany and in a number of jurisdictions outside the country.

For the last few years, the bank has been facing allegations of interest-rate manipulations and sale of toxic mortgage securities. Notably, it signed a $7.2 billion agreement with DoJ over its sale of such securities.

Also, it separately settled cases with the DFS over sanctions violations and “mirror trading.” Moreover, it had to pay $2.5 million civil penalty to the Commodity Futures Trading Commission for failing to report its swaps transactions.

Though the company has resolved most of the legal matters and has progressed on several others, a number of cases are yet to be resolved. Hence, its financials are expected to be exposed to higher legal expenses in the near term. Shares of the company lost 5.1% in the last one year, as against a gain of 23.5% for the Zacks categorized Foreign Banks industry.



Currently, Deutsche Bank carries a Zacks Rank #5 (Strong Sell).

Of the banks mentioned above UBS Group carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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