• The ECB, BaFIN and CNMV remain attentive to DB's internal investigation and developments that are taking place.

Financial Times highlights in its international edition of March 1, 2021, the delicate situation faced by Deutsche Bank due to the possible improper commercialization of derivatives as exchange rate hedges in Spain: “Deutsche Bank under pressure over derivatives sales in Spain".

The specialized journalists of the Financial Times, #Stephenmorris from London and #OlafStorbeck of Frankfurt, highlight in their printed publication how these products hit Spanish SMEs (we would add that also, very importantly, Large Companies) and that the financial authorities are hovering around the entity pending the result of the internal investigation that they are carrying out. cape.

The publication echoes the claims led by Ribelles Abogados and the Judgment of the Provincial Court of Madrid of June 30, 2014 obtained by this office, which confirmed the improper commercialization to SMEs of complex speculative derivatives as exchange rate hedges.

The European Central Bank, as well as the German financial authorities BaFIN and the Spanish CNMV, are monitoring the development of the investigation and the events that are taking place.

This is also highlighted by ABC in its publication of April 26, 2021, which is headed with the headline "Deutsche Bank derivatives that ruined Spanish companies. The bank itself investigates its operations, which are also followed by the ECB, Bafin and the CNMV " and that can be consulted by clicking on this link.

Given the interest in the content of the Financial Times news item, we reproduce below its content translated from English for your better understanding:

Deutsche Bank under pressure from the sale of derivatives in Spain.

Possible improper sale of currency contracts to small businesses is being explored in an investigation and lawsuits Deutsche Bank is under pressure for its sale of complex currency products in Spain, as regulators await the results of an internal investigation into the contracts. that pushed some small businesses into financial difficulties and led to a series of out-of-court settlements. The Financial Times reported last month that Deutsche had launched an investigation under the codename Project Teal after customers complained that they had been sold sophisticated derivative products that they did not understand. The German lender launched an investigation after worrying it could have circumvented the EU's Mifid II rules, designed to protect small businesses from risky loans. He confirmed the investigation to the FT and said that a "limited number of customers" could have been affected.

"Internally, this matter is considered toxic," said a person briefed on the investigation. The European Central Bank, Germany's BaFin and Spanish financial regulator CNMV are closely monitoring the matter and will determine whether to take action after the internal review, people familiar with the situation said. The matter increases pressure on Deutsche CEO Christian Sewing, who has vowed to improve the lender's internal controls after repeated billions of euros of breaches and penalties over the past decade. Some senior German investment bank officials in London and Spain appear to have targeted small financially unsophisticated import / export companies with annual sales of between € 10 million and € 100 million for more than a decade to 2019. An IMF document from 2009 examined the role of these types of instruments, sold by various banks around the world, in fueling the financial crisis.

"[SMEs] trust their banks and are not aware that these products will put them at risk," says Prosper Lamothe Fernández, professor of finance at the Autonomous University of Madrid. He has evaluated the contracts of the affected companies and has provided expert testimony in court. Fernández estimates that between 300 and 500 Spanish companies may have suffered product losses since 2006, including operations with lenders other than Deutsche. The blows averaged between € 5 million and € 10 million, people familiar with several of the litigation said. Losses led some clients into serious financial trouble, and some companies took Deutsche to court in Spain. Some of the cases were thrown out, but the German bank settled with several others, people involved in the arbitration said. Azimutel, an electronic components wholesaler based in Gandía (Valencia), bought a series of currency hedging products in 2007, which brought it to the brink of bankruptcy, according to court documents. In 2011, a Madrid court annulled the contracts and ordered Deutsche to pay 1,4 million euros to Azimutel. Deutsche's appeal against the judgment was rejected in 2014. The court ruled that the bank failed to fulfill its obligations under European legislation relating to the suitability of customers. Azimutel declined to comment. Several other small companies - some currently in talks with Deutsche, as well as others that have already reached an agreement - declined to be interviewed, citing confidentiality requirements.

The products in question are currency swaps, derivatives called “specific accrual redemption notes and forwards (TARN and TARF). Deutsche sellers presented them as a cheaper way to hedge exposure to currency pairs, such as the dollar-euro, than traditional exchange insurance. Small businesses were told that the products were "zero-premium," with no upfront cost, and could even make customers money, according to people familiar with the matter. In a stable currency market, derivatives sometimes benefited clients. However, if volatility were to increase and the exchange rate fluctuated beyond a predetermined barrier, the cost could multiply rapidly. "It is impossible for the client to quantify or calculate the cost of the product," said Julio Ribelles, a Valencia lawyer who successfully represented Azimutel and other plaintiffs against Deutsche. In essence, you are betting against the bank, but they know the formulas, they have the algorithms and the specialized software.

The practice at Deutsche continued even after Mifid II, which took effect in 2018, banned the sale of sophisticated derivatives to small companies. The standards allow customers to request to be treated as more sophisticated to access a wider range of products, and Deutsche encouraged customers to do so. Deutsche Bank told the FT that it "disagrees" with the notion that it improperly sold complex derivatives to a large number of Spanish SMEs over many years, and that these products pushed some clients to the brink of bankruptcy.

"This description of the facts is similar to the unsubstantiated allegations that a Spanish law firm has already made, apparently to encourage speculative legal action against the bank," he said. A person briefed on the matter said Deutsche was aware of fewer than 10 mis-sale litigation over its two-decade history of selling Spain products, including some that the bank won. The person added that these products were "widely sold in Spain by a wide range of banks."

"As always, we are following the evidence and diligently looking for any potential similar activity," added Deutsche. " We do not intend to comment further until all elements of the investigation are completed. The Spanish financial regulator CNMV was notified of these incidents by the companies involved as early as 2011, but has not taken action. The CNMV said it is aware of the situation, but will only comment when a decision or measure is taken. The BaFin and the ECB declined to comment. Larger and more sophisticated companies have also suffered heavy losses from similar contracts. The Spanish wine exporter J García Carrión has sued Goldman Sachs before the High Court of London to demand the partial refund of 6,2 million dollars of losses caused by foreign exchange derivatives. Goldman maintains that the products were not excessively complex for a multinational company.

[Source: Financial Times (March 01, 2021). Authors: Olaf Storbeck and Stephen Morris.]

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