Deutsche Bank’s $6bn ‘fat finger’ error raises fresh questions over risk control

Deutsche Bank paid $6bn to a hedge fund client by mistake in a “fat finger” trade on its foreign exchange desk this summer that raises further 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 forex team was an embarrassing blow for 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 $6bn trade was processed by a junior member of the forex sales team in June while his manager was on holiday, according to two people familiar with the matter. Instead of
processing a net value, the person processed a gross figure. This meant the trade had “too many zeroes”, said one of the people.

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

The $6bn 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. Two people familiar with the trade said such mistakes
were surprisingly common but ones of that size were rare. Deutsche declined to comment.

John Cryan, who took over as co­chief 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 American 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, the rigging of the Libor
interest rate and foreign exchange markets to money laundering in Russia.

 

By: Martin Arnold and Katie Martin