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Deutsche Bank (DB) Likely to Face Formal ECB Investigation

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Deutsche Bank AG (DB - Free Report) might be scrutinized by the European Central Bank (“ECB”) on allegations of purchasing and selling its own debt for more than three years without proper regulatory approval. The securities in question are AT1 and AT2 bonds or so-called 'bail-in' bonds. The news was first reported by Sueddeutsche Zeitung.

These bonds were introduced post 2008 financial crisis to protect taxpayers from potential bailout costs in case a bank runs into trouble by placing risk in the hands of bondholders.

Deutsche Bank had requested permission to purchase such bonds in 2014. Despite being denied, the bank kept buying them with an aim to make market liquid.

Deutsche Bank will be exposed to penalty in case a formal investigation is started on the matter. Per the article, the fine could be about twice the profits that a bank earns from unauthorized dealings.

Recently, the bank agreed to pay $15 million in penalty to settle allegations that it exploited its market presence by overcharging clients for unsecured bonds issued by Fannie Mae and Freddie Mac between Jan 1, 2009 and Jan 1, 2016.

The German lender was the first to settle among other global banks involved in the investigation. Though it did not admit any wrongdoing, Deutsche Bank received criminal leniency in antitrust matters by agreeing to provide information such as electronic chats and other key evidences that can be used to prove other banks like Goldman Sachs (GS - Free Report) , BNP Paribas SA (BNPQY - Free Report) and Morgan Stanley (MS - Free Report) , guilty.

Deutsche Bank seems to be mired in a whole lot problems lately. It continues to be involved in several legal issues, and its top line is affected by low interest rates in domestic economy.

Shares of Deutsche Bank have lost 8.2% on the NYSE in the past six months compared with the industry’s decline of 7.8%.

The stock currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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