Deutsche Bank accidently paid client €5.3bn

Deutsche Bank paid $6 billion (€5.3 billion) to a hedge fund client by mistake in a “fat finger” trade on its foreign exchange desk this summer that raises fresh questions about its operational controls and risk management.

Germany’s biggest bank recovered the money from the US hedge fund the next day. But the incident in its London-based foreign exchange market team was an embarrassing blow to the bank, which is already under intense scrutiny from regulators.

The bank, which on Sunday announced a drastic shake-up of its senior management and split its investment bank in two, is struggling to restore its profitability and reputation in the wake of corruption scandals and missed performance targets.

The $6 billion trade was processed by a junior member of the bank’s foreign exchange market sales team in June while his boss was on holiday. Instead of processing a net value, the person processed a gross figure. That meant the trade had “too many zeroes”, said one of source.

When dealing with hedge funds, banks typically net off the various transactions through the course of the day to send a final payment at the close of trading.

The $6 billion error raises questions about why it was not spotted under the bank’s “four eyes principle”, requiring every trade to be reviewed by another person before being processed.

The bank reported the incident to the US Federal Reserve, the European Central Bank and the UK Financial Conduct Authority. Deutsche declined to comment.

John Cryan, who took over as co-chief executive of Deutsche in July, has emphasised the need to tighten up the bank’s culture, sharpen its internal processes and improve its frayed relations with regulators.

Deutsche insiders blamed its failure in this year’s US stress test on years of under-investment in IT that made it unable to meet regulators’ demands.

The bank is trying to deal with investigations by regulators across the world into a range of alleged wrongdoing, from breaking US sanctions against Iran and the rigging of the Libor interest rate and foreign exchange markets, to money laundering in Russia.

– (Copyright The Financial Times 2015)