Deutsche Bank has compensated Spanish wine-making company J Garcia Carrion with €10m ($12 million) for the alleged losses it suffered in purchasing foreign exchange derivates from the bank.
Deutsche Bank sent a delegation to Madrid last year to negotiate a settlement for the cumulative losses Europe’s largest wine exporter suffered over a period of six years. Apart from the compensation, the bank tendered an apology for its traders’ and salespeople’s behavior.
An internal investigations named Project Teal was initiated to probe the misselling of these derivatives as viable alternatives by the bank’s managers to its clients.
Clients complained that the instruments were presented as sophisticated and lucrative transactions, which were highly complex to understand. Additionally, they were in contravention of EU rules designed to protect businesses from risky lending.
Two senior executives, senior managers Louise Kitchen, head of Deutsche’s asset wind-down unit, and Jonathan Tinker, co-head of global foreign exchange, who were in charge of the exchange activities, have already been dismissed by the bank.
Deutsche Bank has made several other out-of-court settlements with other clients who fell victim to these overinflated transactions.
The banks had earlier dismissed concerns about the misconduct in transactions as minimal transgression and affecting “a limited number of clients”.
The forex swaps were sold as a cheaper way to hedge currency exposure as compared to the traditional foreign exchange route, resulting in a number of clients suffering great losses pushing them into financial trouble.
The settlement is bound to affect Goldman Sachs and BNP Paribas, which face similar accusations from JGC.
JGC has already filed a complaint against Goldman Sachs with the UK’s Financial Conduct Authority in May. The complaint alleges that the US bank “incited the sale of unauthorized speculative derivatives unconnected to Garcia Carrion’s business, with obscure implicit fees, and without regard to the relevant regulation relating to communicating risks and the volume of the client’s business,” according to a company statement.
Goldman Sachs is fighting the allegations denying any wrongdoing and has filed a suit in September claiming $6.2 million from JGC that it claims is owed to it.
JGC has made another complaint against France’s BNP for facilitating billions of euros worth of currency transactions that led to tens of millions in losses. An internal investigation conducted by JGC found that BNP conducted more than 8,400 foreign exchange transactions with the company over a five-year period, causing €75m of cash losses. The French bank has refused any compensation to JGC. BNP said in a statement that it complied with all the rules.
Goldman Sachs further claims that the risks were made clear to the company, and it is improbable that a multinational company with hedging needs found the derivative transactions too complex to understand. JGC holds a former senior manager responsible for making such trades in secret and covering up the misdeeds by falsifying documents.
The 130-year-old Jumilla-based wine producer is known for its boxed wine and juice brand, Don Simón.
