According to people familiar with the matter, Deutsche Bank may have erroneously sold foreign exchange derivatives to more than 50 companies in Spain, which shows that the scope of the scandal that has led to the departure of two senior bankers is wider than previously thought.
Germany’s largest bank launched an internal investigation last year after customers complained that they had sold complex derivatives that they did not understand.
This investigation, called Project Teal within Deutsche Bank, was first disclosed by the Financial Times earlier this year. At the time, the bank stated that “a limited number of customers” were affected.
According to people familiar with the matter, the bank is currently reviewing the cases of 50 to 100 companies that may be involved, but it is not clear how many companies have suffered financial losses.
Deutsche Bank paid more than 10 million euros to J García-Carrión, Europe’s largest wine exporter, to resolve the dispute over losses suffered by the Spanish company. The Financial Times reported last month.
Bloomberg first reported on the expansion of the investigation earlier on Thursday. The report stated that Palladium Group of Ibiza, one of Spain’s largest hotel chains, had also mistakenly sold currency products and was evaluating its options.
“We can confirm that we have encountered a situation similar to J García-Carrión and are undergoing pre-litigation proceedings in London,” Palladium said, but did not specify any so-called extent of losses or the number of transactions involved.
Deutsche Bank confirmed in a statement that it is investigating potential improper sales, but declined to comment on specific cases. It added: “We will follow up any evidence and work hard to find any potential similar activities.”
Project Teal focuses on the sale of hedging, swaps, derivatives and other complex financial products. Foreign exchange derivatives are considered to be a cheaper way to hedge currency risks than traditional exchange rate insurance.
According to people familiar with the matter, the investigation found that corporate customers were misclassified under the Financial Instruments Market Directive (Mifid), an EU regulation that requires banks to classify customers based on their financial complexity.
The Financial Times reported last month that the departure of two senior executives from Deutsche Bank was related to the scandal. The bank announced in early June that Louise Kitchen, head of Deutsche Bank’s asset clearing department, and Jonathan Tinker, co-head of global foreign exchange, will step down and leave the bank.
The two traders responsible for the problematic activity have left the bank.
Deutsche Bank is not the only bank that has received attention for its foreign exchange sales. J García-Carrión also filed a lawsuit against Goldman Sachs in the High Court of London for losses of US$6.2 million related to exotic currency derivatives.
In addition, JGC accused France’s BNP of improperly conducting currency transactions worth billions of euros, resulting in losses of tens of millions of dollars. BNP Paribas stated that it complies with all regulatory obligations regarding the sale of derivatives and foreign exchange instruments.