Deutsche Bank AG is struggling to wind down complex foreign-exchange derivatives it sold to small companies in Spain after it decided to curtail the practice.
(Bloomberg) — Deutsche Bank AG is struggling to wind down complex foreign-exchange derivatives it sold to small companies in Spain after it decided to curtail the practice.
While the German lender has run off the biggest part of the portfolio, there are still several contracts with clients who are facing deep losses on the products after adverse currency movements, people familiar with the matter said.
Those movements haven’t fully reversed, and Deutsche Bank has been renewing the contracts in an effort to prevent clients from having to recognize the losses — and potentially for the bank itself to share in the pain — the people said. As a result, it’s taking longer than initially planned to phase out the portfolio, they said, asking not to be named discussing the private information.
A spokesman for Deutsche Bank declined to comment.
Deutsche Bank’s struggle to wind down the portfolio comes after it completed an internal probe earlier this year that reviewed how it used to sell other kinds of FX derivatives in Spain that left some corporate clients in the red. The probe, codenamed Project Teal, resulted in the departures of several employees and settlements with some of the affected clients worth tens of millions of dollars.
DB has reviewed sales processes and related controls regarding FX derivatives in the context of Project Teal, a person familiar with the matter said. The lender took those actions even before the Spanish regulator CNMV recently introduced new restrictions on the sale of complex products to retail SME clients, and has stopped providing complex derivatives to such clients, the person said.
Deutsche Bank continues to provide FX derivatives to clients that are categorized as professional under a European regulation known as MiFID, the person said.
The European Central Bank, which is Deutsche Bank’s top regulator, told the lender a few months ago that it needs to improve oversight and checks at its business that pitches FX derivatives such as swaps to European companies, Bloomberg reported in July. The ECB is concerned that the lender still hasn’t been explaining the products’ risks sufficiently when selling them to clients, people familiar with the matter said at the time.
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