They called each other “dude,” “mate” and “amigo,” suggesting a certain innocence to their friendship. And yet at the center of their dispatches, United States and British authorities say, was actually a collusive effort to manipulate worldwide interest rates.
“I’m begging u, don’t forget me,” one Deutsche Bank trader wrote in an online chat to an employee at a rival bank, seeking to influence rates. “Pleassssssssssssssseeeeeeeeee ... I’m on my knees ...”
The messages captured the scheme at Deutsche Bank, which on Thursday became the latest big bank to settle accusations that it manipulated interest rates that underpin trillions of dollars in mortgages, student loans and other debt.
To settle the case, the bank agreed to pay $2.5 billion in penalties, a record for the interest rate cases, which have already stung the likes of Barclays and UBS. Deutsche Bank — Germany’s largest financial institution and, at least for now, a problem child in the eyes of regulators — also agreed to accept a criminal guilty plea for the British subsidiary at the center of the case. It is the most significant banking unit to accept a criminal plea in the long-running investigation into the manipulation of the London interbank offered rate, or Libor.
While the deals require Deutsche Bank to dismiss certain employees, no one at the bank has been criminally charged, though in at least one previous Libor case, prosecutors charged individuals after reaching a settlement with the bank itself. “Today’s resolution of the Libor investigation with Deutsche Bank is in some respects the most significant one yet,” said Leslie R. Caldwell, head of the Justice Department’s criminal division, which handled the case along with authorities in Washington, London and New York, where the state’s financial regulator, Benjamin M. Lawsky, joined a Libor settlement for the first time.
The case spotlighted the collusive elements of Wall Street trading desks, where rival banks have occasionally joined forces to manipulate financial benchmarks. It also foreshadows looming actions against banks suspected of teaming up to manipulate the price of foreign currencies, people briefed on the matter said, with the Justice Department planning to announce guilty pleas from at least four banks — Barclays, JPMorgan Chase, Citigroup and the Royal Bank of Scotland — by next month.
“Financial markets function properly only if customers and competing banks have confidence that they are untainted by fraud and collusion,” said William J. Baer, the head of the Justice Department’s antitrust unit, adding that “the unprecedented size of the penalty” demonstrates just “how far from that bedrock principle Deutsche Bank and its traders strayed.”
As the foreign exchange negotiations heat up, the Libor cases are drawing to a close. In the final chapter of the case, the authorities will continue to scrutinize three American banks — JPMorgan, Citigroup and Bank of America — though it is unclear whether those investigations will result in criminal cases.
Mr. Lawsky will continue to investigate foreign banks suspected of Libor manipulation through their New York branches, according to two of the people briefed on the matter. Mr. Lawsky is also investigating the foreign currency manipulation.
The Libor investigation, which began seven years ago with a single investigator at the Commodity Futures Trading Commission, has spread to criminal and regulatory agencies around the globe. In addition to the Justice Department’s criminal and antitrust divisions, Deutsche Bank settled with Mr. Lawsky’s office, the trading commission and the Financial Conduct Authority of Britain.
As part of the deals, the bank will install an independent monitor, the first such requirement in a Libor case. More broadly, the authorities ordered the bank to dismiss seven managers suspected of involvement in the wrongdoing, all but one of whom are in London. They were among 29 employees suspected of playing a role, most of whom have already left the bank.
The settlement is something of a mixed bag for Deutsche Bank.
In agreeing to the deals, the bank closes a sordid chapter in its history. But the terms announced on Thursday will be costly to shareholders, and could do further damage to the bank’s already battered reputation.
“We deeply regret this matter but are pleased to have resolved it,” Jürgen Fitschen and Anshu Jain, the co-chief executives of Deutsche Bank, said in a statement on Thursday. “The bank accepts the findings of the regulators.”
The size of the fine is particularly hard to swallow for the bank, which had hoped to pay less than $2 billion, one of the people briefed on the matter said. And while the deals will provide some closure to Deutsche Bank, they will not end the bank’s legal problems. It is also ensnared in the foreign exchange investigation. And it is suspected of violating United States sanctions against countries like Iran.
The size of the Libor fine, which eclipsed the $1.5 billion UBS agreed to pay in 2012, reflected in part the breadth of wrongdoing that the authorities uncovered. The authorities also denounced the bank for lax oversight of traders and a failure to respond to warning signs of misconduct. The bank, the authorities said, also dragged its feet in providing information, taking two years to provide audio recordings requested by investigators and accidentally destroying some evidence.
The wrongdoing at Deutsche Bank lasted from 2005 to 2011 and touched employees in London, Frankfurt, New York and Tokyo, the authorities said.
“Markets do not just manipulate themselves,” Mr. Lawsky said in a statement. “It takes deliberate wrongdoing by individuals.”
Manipulation of Libor, an average of how much banks say they would pay to borrow from one another, struck a nerve with government authorities. As a benchmark for trillions of dollars in credit-card loans and other financial instruments, Libor is a cornerstone of the financial marketplace.
“Today’s action against Deutsche Bank reflects the C.F.T.C.’s unwavering commitment to protect the integrity of critical, global financial benchmarks from profit-driven traders,” Aitan Goelman, the head of the trading commission’s enforcement division, said in a statement.
Besides serving as a guidepost to set rates, the benchmarks are a barometer of the broader health of the financial system. If banks are paying more to borrow from one another, it can be a sign that they are unstable, a concern at the heart of the message in which the Deutsche Bank trader begged a competitor to submit a lower rate.
Other times, Deutsche Bank employees would use their submissions to push reference rates up or down to suit their own financial needs. In 2005, a Deutsche Bank trader contacted a colleague who was making rate submissions, to ask, “can we have a high 6mth libor today pls?” The colleague replied, “sure dude, where wld you like it mate?”
Inside Deutsche Bank, there was widespread recognition of the problem, the authorities said.
In 2009, for example, a Deutsche Bank vice president wrote to a trader that the Tokyo interbank rate “is a corrupt fixing and D.B. is part of it!”