By Andrew Willis
Deutsche Bank (DB) seems intent on fighting regulators over its conduct during the ABCP meltdown, rather than striking a settlement.
Market watchdogs at the Investment Industry Regulatory Organization of Canada - known as IIROC - announced early Tuesday that it will hold a hearing on Jan. 6 over allegations the Deutsche Bank Securities “failed to act fairly, honestly and/or in good faith to its clients by not disclosing the information relating to U.S. subprime and the liquidity risk in third-party asset-backed commercial paper (ABCP) to all of its clients.”
This is a high risk strategy for the global bank: No matter what a regulatory panel eventually decides, Deutsche Bank will have its actions in the credit markets portrayed in the worst possible light as part of the hearing process.
Other investment banks are attempting to stike a settlement with regulators over their role in the ABCP saga, which saw a $30 billion market freeze up in August, 2007. Investors stuck with ABCP shouldered substantial losses on this supposedly low-risk commercial paper.
Deutsche Bank was a major player in the Canadian third-party ABCP market, and IIROC alleges the dealer “failed to ensure proper regulatory compliance oversight of third-party ABCP.”
The German bank “failed to observe high standards of ethics and conduct in the transaction of their business, and/or engaged in business conduct or practice which is unbecoming or detrimental to the public interest,” according to the Canadian regulator.
IIROC said it has been investigating Deutsche Bank’s role in the ABCP market since February, 2008.