Sustainalytics: Deutsche Bank has High Risk Business Ethics

Deutsche Bank has been rocked this week by news that their Frankfurt office was raided in a money-laundering probe

Emma Wall 30 November, 2018 | 9:24AM

euro bank note Deutsche Bank risk rating high controversy

Deutsche Bank’s (DBK) business ethics have been rated high risk to shareholder outcome by responsible investing analyst company Sustainalytics – with a negative rating outlook.

The Bank has been rocked this week by news that their Frankfurt office was raided in a money-laundering probe. The shares fell more than 10% in inter-day trading yesterday as the reports broke.

Sustainalytics’ anticipates a downgrade of its assessment in the next 12‐24 months for the following considerations due to more long-term concerns.

In their governance assessment the ratings agency notes:

“Seen as one of the contributors to the financial crisis, Deutsche Bank is subject to tighter regulatory conditions, which may increase the frequency of investigations and therewith the reputational and legal risks for the company. While an increasing number of legal investigations by regulatory institutions, referring to issues that happened multiple years ago, have come to an end in the past two years, new investigations continue to emerge.

“For those cases where Deutsche Bank agreed on a settlement, such as misconduct related to selling residential mortgage backed securities and the Russian mirror trades, both officially settled with particular regulators in January 2017, the formal comments provided by regulator’s indicate that ethical management and controls are still ineffective.

“The bank has in the meantime settled some cases with large financial impact, such as Euribor, forex and Libor rate manipulation, and the aforementioned residential mortgage backed securities case.

“These settlements have reduced financial and reputational insecurity. However, the record fines attached to these settlements have had significant reputational and financial impact on the company, keeping the bank in the spotlight of media.

“Furthermore, investigations into issues like money‐laundering, including the Russian mirror trades, and ADRs are still ongoing and there is the potential for further negative developments to occur.”

Sustainalytics also considers Deutsche to carry “significant” controversy risk, and assigns a significant risk rating of regarding anti-competitive practices.

The report continues:

“Deutsche Bank is involved in a number of antitrust investigations by regulators and is also facing class action lawsuits related to this type of misconduct. Most significantly, in October 2015 a settlement of $1.86 billion was reached with 12 banks, including Deutsche Bank, being accused of collusion in the credit default swaps (CDS) market. Of the total fine, Deutsche Bank paid around $120 million.

“The frequency and scale of the allegations against the company are significant. Investigations and legal actions are expected to continue, exacerbating the company’s legal risks. Deutsche Bank is also involved in a large number of customer‐related investigations and lawsuits, mostly related to mortgage‐backed securities, but also, among others, for mis‐selling unsuitable structured notes."

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Deutsche Bank AG7.72 EUR0.94

About Author

Emma Wall

Emma Wall  is Senior International Editor for Morningstar