Deutsche Bank traders win unfair dismissal case

By Edward Taylor

FRANKFURT (Reuters) - Four traders have won a case for wrongful dismissal against Deutsche Bank AG , which had accused them of violating company policy by inappropriately communicating with other traders at the bank over the setting of interbank lending rates.

The four were responsible for setting Euribor and Libor interbank rates and their dismissal in February came amid a broader inquest into interbank rates. Three banks have been fined for manipulating Libor, a larger counterpart to Euribor, and investigations are continuing into the matter.

Rates such as Euribor and Libor are hugely important in financial markets, being not just key gauges of how much banks pay to borrow from their peers but also used to set prices for swathes of financial products from some mortgages to more complex derivatives.

Announcing her ruling relating to the ex-Deutsche Bank traders on Wednesday, presiding judge Annika Gey told a Frankfurt labour court: "The termination was out of proportion".

She ordered Deutsche to reinstate the traders - known only as Ardalan G, Kai-Uwe K, Markus K and Joerg V because their full names were not made public for legal reasons - and pay them their salaries since firing them in February.

The bank had fired five Frankfurt-based traders suspected of inappropriate conduct following an internal investigation into possible manipulation of the Europe Interbank Offered Rate or Euribor. One had already reached a settlement with Deutsche Bank.

Deutsche had told the Frankfurt Labour court it had fired the five after discovering some staff appeared to have shown a willingness to consider the bank's own trading positions when they submitted their estimates for the Euribor and Libor rates.

But the traders said they were not aware of a ban prohibiting them from talking to other trading desks about interbank lending matters.

Deutsche's own trading positions at other desks within the bank could increase or decrease in value depending on what kind of interbank lending rate was determined by the money markets team.

Deutsche insisted it was forbidden to discuss Euribor and Libor submissions with derivative traders and said the traders, who held the titles of managing director, director and vice president in the global markets division, should have submitted estimates for interbank lending rates in a manner which was totally objective.

CLOSE PROXIMITY

The traders said they believed Deutsche had in practise condoned the habit of communicating between the different trading desks.

Deutsche had appeared to condone collaboration between different parts of the trading desk when it imported to Frankfurt a "short-term interest-rate trading" seating arrangement used in Asia, whereby money-market traders, swaps traders and derivative traders sat in close proximity.

The traders, speaking through their lawyer, said their discussions did not amount to collusion or manipulation so much as "an exchange of opinion about the state of the market."

The judge said Deutsche had failed stop these interactions with specific guidelines or sanctions or make sufficiently clear that this was inappropriate behaviour.

"At the time these contested communications occurred, Deutsche Bank had not implemented clear rules or controls to ensure a strict separation between submitters and derivatives traders," the judge said.

Furthermore, the court said Deutsche had operated a system with substantial conflicts of interest, since one trader who made a submission for interbank lending rates was also a derivatives trader.

On discovering signs of what it viewed as misconduct, Deutsche Bank had also failed to issue a formal warning to the traders and therefore to fire them at a later point was too severe, the judge said.

The traders said Deutsche had begun analysing messages between traders in 2011 but had only fired the Frankfurt team in 2013.

The traders' lawyer said he was satisfied with the court's ruling, while Deutsche's lawyer said he would wait for the written judgment before deciding whether to lodge an appeal.

In a statement, Deutsche Bank said: "We regret the court's decision and believe our action in this matter was justifiable .. . We wait for the written judgement and will then decide whether we will appeal the decision."

Deutsche was among more than 40 banks contributing toward setting Euribor.

(Editing by Maria Sheahan and David Holmes)