Deutsche's '£400m from bets on rates'

  • @TheIndyBusiness

Deutsche Bank made huge profits from betting on Libor interest rates, it was reported today, amid fresh rumours that Royal Bank of Scotland is poised to settle with regulators and pay more than £300m over the Libor-fixing affair.

The Wall Street Journal said that the German bank made at least €500m (£400m) from trades pegged to Libor rates in 2008.

The newspaper reported that it had seen documents detailing the scope and manner by which a bank could painstakingly construct a series of trades to reap huge profits from small changes in various rates.

The documents were supplied by a whistleblower who passed them to regulators.

A spokesperson for the bank was at pains to stress that the trades in question were "pegged to interest rates" and did not involve the setting of the rates.

Libor is compiled by banks submitting details of what they expect to pay to borrow from other banks in various currencies.

The Deutsche trades were carried out by traders in London and New York and contributed to the €5.9bn profit posted in 2008 by the bank's global-finance and foreign-exchange operation. In a statement the bank said: "This strategy, which was subject to the Bank's risk limits and used by many in the market place, diversified and lowered the bank's portfolio risk during the peak of the financial crisis.

"It was based on a market view about the likely direction of interest rates and not on any belief that the bank could inappropriately influence interbank lending rates."

Deutsche, which was on Libor-setting panels, is one of a number of banks that are co-operating with regulators' investigations. Its London operation is set up as a branch, which could make it difficult for UK regulators to act.

Barclays and UBS have faced huge fines after their traders were found to have tried to manipulate the setting of the rates.

Royal Bank of Scotland is seen as the next in line to settle with watchdogs over the affair.